Aerostar's (BVB:ARS) Dividend Will Be Increased To RON0.24

The board of Aerostar S.A. (BVB:ARS) has announced that the dividend on 5th of June will be increased to RON0.24, which will be 14% higher than last year's payment of RON0.21 which covered the same period. This will take the annual payment to 2.3% of the stock price, which is above what most companies in the industry pay.

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Aerostar's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Aerostar was paying only paying out a fraction of earnings, but the payment was a massive 281% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 7.7% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Aerostar

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was RON0.0685 in 2015, and the most recent fiscal year payment was RON0.21. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Aerostar Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Aerostar has been growing its earnings per share at 7.7% a year over the past five years. Aerostar definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Aerostar will make a great income stock. While Aerostar is earning enough to cover the payments, the cash flows are lacking. We don't think Aerostar is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Aerostar that you should be aware of before investing. Is Aerostar 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.