Sonae SGPS (ELI:SON) Is Paying Out A Larger Dividend Than Last Year

Sonae, SGPS, S.A.'s (ELI:SON) dividend will be increasing on the 16th of May to €0.051, with investors receiving 5.1% more than last year. This takes the dividend yield from 4.9% to 4.9%, 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. Based on the last payment, Sonae SGPS was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to fall by 33.7%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 67%, which is comfortable for the company to continue in the future.

Sonae SGPS Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from €0.033 in 2012 to the most recent annual payment of €0.051. This implies that the company grew its distributions at a yearly rate of about 4.4% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Sonae SGPS' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Sonae SGPS that investors should know about before committing capital to this stock. 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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