Purcari Wineries (BVB:WINE) Will Pay A Smaller Dividend Than Last Year

Purcari Wineries Public Company Limited (BVB:WINE) is reducing its dividend from last year's comparable payment to RON0.51 on the 8th of September. This means the annual payment is 5.5% of the current stock price, which is above the average for the industry.

View our latest analysis for Purcari Wineries

Purcari Wineries' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Purcari Wineries was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Unless the company can turn things around, EPS could fall by 10.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 50%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Purcari Wineries' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 3 years was RON0.475 in 2019, and the most recent fiscal year payment was RON0.51. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Purcari Wineries' EPS has declined at around 10% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Purcari Wineries is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Purcari Wineries that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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