Echo Investment (WSE:ECH) Has Announced That Its Dividend Will Be Reduced To zł0.10

Echo Investment S.A.'s (WSE:ECH) dividend is being reduced to zł0.10 on the 26th of July. This means that the annual payment will be 9.9% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Echo Investment

Echo Investment's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last dividend, Echo Investment is earning enough to cover the payment, but the it makes up 959% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to fall by 21.1%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 42%, which is comfortable for the company to continue in the future.

Echo Investment's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from zł2.86 to zł0.32. The dividend has fallen 89% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

Echo Investment May Find It Hard To Grow The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Echo Investment's EPS has declined at around 4.2% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Echo Investment's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Echo Investment 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. For example, we've identified 3 warning signs for Echo Investment (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.