Sonae SGPS (ELI:SON) Is Increasing Its Dividend To €0.0564

Sonae, SGPS, S.A. (ELI:SON) will increase its dividend from last year's comparable payment on the 16th of May to €0.0564. This makes the dividend yield 6.0%, which is above the industry average.

See our latest analysis for Sonae SGPS

Sonae SGPS' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Sonae SGPS' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 47.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 59%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Sonae SGPS Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was €0.0331 in 2014, and the most recent fiscal year payment was €0.0564. This means that it has been growing its distributions at 5.5% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Sonae SGPS has grown earnings per share at 11% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Sonae SGPS' prospects of growing its dividend payments in the future.

We Really Like Sonae SGPS' Dividend

Overall, a dividend increase is always good, and we think that Sonae SGPS is a strong income stock thanks to its track record and growing earnings. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Sonae SGPS that you should be aware of before investing. 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.