Jerónimo Martins SGPS (ELI:JMT) Has Announced That Its Dividend Will Be Reduced To €0.59

Jerónimo Martins, SGPS, S.A.'s (ELI:JMT) dividend is being reduced from last year's payment covering the same period to €0.59 on the 15th of May. However, the dividend yield of 2.6% is still a decent boost to shareholder returns.

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Jerónimo Martins SGPS' Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Jerónimo Martins SGPS was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 53.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Jerónimo Martins SGPS

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was €0.245, compared to the most recent full-year payment of €0.59. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Jerónimo Martins SGPS might have put its house in order since then, but we remain cautious.

We Could See Jerónimo Martins SGPS' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Jerónimo Martins SGPS has been growing its earnings per share at 9.0% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Jerónimo Martins SGPS' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Jerónimo Martins SGPS has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 17 analysts we track are forecasting for Jerónimo Martins SGPS for free with public analyst estimates for the company. 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.