EDP's (ELI:EDP) Upcoming Dividend Will Be Larger Than Last Year's

The board of EDP, S.A. (ELI:EDP) has announced that the dividend on 6th of May will be increased to €0.20, which will be 2.6% higher than last year's payment of €0.195 which covered the same period. This will take the annual payment to 6.0% of the stock price, which is above what most companies in the industry pay.

Our free stock report includes 2 warning signs investors should be aware of before investing in EDP. Read for free now.

EDP's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 103% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 46.5%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 71% which brings it into quite a comfortable range.

Check out our latest analysis for EDP

EDP Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from €0.185 total annually to €0.20. Dividend payments have been growing, but very slowly over the period. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

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. It's encouraging to see that EDP has been growing its earnings per share at 6.4% a year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

EDP's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think EDP's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for EDP that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.