CTT - Correios De Portugal (ELI:CTT) Is Increasing Its Dividend To €0.12

CTT - Correios De Portugal, S.A. (ELI:CTT) will increase its dividend on the 20th of May to €0.12. Based on the announced payment, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.

Check out our latest analysis for CTT - Correios De Portugal

CTT - Correios De Portugal's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. CTT - Correios De Portugal was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 80% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 15.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

CTT - Correios De Portugal's Dividend Has Lacked Consistency

CTT - Correios De Portugal has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 8 years was €0.40 in 2014, and the most recent fiscal year payment was €0.12. This works out to a decline of approximately 70% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though CTT - Correios De Portugal's EPS has declined at around 9.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On CTT - Correios De Portugal's Dividend

In summary, while it's always good to see the dividend being raised, we don't think CTT - Correios De Portugal's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think CTT - Correios De Portugal is a great stock to add to your portfolio if income is your focus.

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. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 3 analysts we track are forecasting for the future. 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.