Echo Investment (WSE:ECH) Is Reducing Its Dividend 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 Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. 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

Echo Investment has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 7 years was zł2.86 in 2015, and the most recent fiscal year payment was zł0.32. Dividend payments have fallen sharply, down 89% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's not great to see that Echo Investment's earnings per share has fallen at approximately 4.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Echo Investment's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Echo Investment (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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