Stalprodukt's (WSE:STP) Upcoming Dividend Will Be Larger Than Last Year's

Stalprodukt S.A. (WSE:STP) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of July to PLN15.00. This makes the dividend yield 5.0%, which is above the industry average.

Check out our latest analysis for Stalprodukt

Stalprodukt's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Stalprodukt was paying a whopping 238% as a dividend, but this only made up 19% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 28.9%. If the dividend continues along recent trends, we estimate the payout ratio could be 34%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was PLN1.00, compared to the most recent full-year payment of PLN15.00. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Stalprodukt has grown earnings per share at 10% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Stalprodukt's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Stalprodukt's payments are rock solid. While Stalprodukt is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Stalprodukt has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Stalprodukt not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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