Farmaceutica REMEDIA's (BVB:RMAH) Dividend Will Be Reduced To RON0.04

Farmaceutica REMEDIA S.A.'s (BVB:RMAH) dividend is being reduced by 20% to RON0.04 per share on 30th of September, in comparison to last year's comparable payment of RON0.05. This means the annual payment is 7.8% of the current stock price, which is above the average for the industry.

Farmaceutica REMEDIA's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Farmaceutica REMEDIA's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share could rise by 26.8% 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 45%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

View our latest analysis for Farmaceutica REMEDIA

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was RON0.015, compared to the most recent full-year payment of RON0.05. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Farmaceutica REMEDIA's Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Farmaceutica REMEDIA has seen EPS rising for the last five years, at 27% per annum. While EPS is growing rapidly, Farmaceutica REMEDIA paid out a very high 181% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 identified 3 warning signs for Farmaceutica REMEDIA (1 is potentially serious!) that you should be aware of before investing. Is Farmaceutica REMEDIA 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.