Aerostar's (BVB:ARS) Shareholders Will Receive A Bigger Dividend Than Last Year

Aerostar S.A.'s (BVB:ARS) periodic dividend will be increasing on the 5th of June to RON0.24, with investors receiving 14% more than last year's RON0.21. This will take the dividend yield to an attractive 2.2%, providing a nice boost to shareholder returns.

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Aerostar's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Aerostar's dividend was only 35% of earnings, however it was paying out 281% of free 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. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Aerostar

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of RON0.0685 in 2015 to the most recent total annual payment of RON0.21. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Aerostar has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Aerostar Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Aerostar has seen EPS rising for the last five years, at 7.7% per annum. Aerostar definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Aerostar's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Aerostar's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Aerostar is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Aerostar that you should be aware of before investing. 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.