Sonae SGPS (ELI:SON) Is Increasing Its Dividend To €0.0537

The board of Sonae, SGPS, S.A. (ELI:SON) has announced that the dividend on 16th of May will be increased to €0.0537, which will be 5.1% higher than last year's payment of €0.0511 which covered the same period. This takes the dividend yield to 5.3%, which shareholders will be pleased with.

View our latest analysis for Sonae SGPS

Sonae SGPS' 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, Sonae SGPS was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 49.6% over the next 12 months. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 75%, meaning that most of the company's earnings are being paid out to shareholders.

Sonae SGPS Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was €0.0331, compared to the most recent full-year payment of €0.0537. This means that it has been growing its distributions at 5.0% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Sonae SGPS has seen EPS rising for the last five years, at 11% per annum. Sonae SGPS definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Sonae SGPS' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Sonae SGPS that investors need to be conscious of moving forward. Is Sonae SGPS not quite the opportunity you were looking for? Why not check out our selection of top 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.