Societatea Energetica Electrica (BVB:EL) Will Pay A Smaller Dividend Than Last Year

Societatea Energetica Electrica S.A. (BVB:EL) has announced it will be reducing its dividend payable on the 17th of June to RON0.45. However, the dividend yield of 4.9% is still a decent boost to shareholder returns.

See our latest analysis for Societatea Energetica Electrica

Societatea Energetica Electrica's Distributions May Be Difficult To Sustain

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even in the absence of profits, Societatea Energetica Electrica is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share could 9.2% over the next year if the trend of the last few years can't be broken. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Societatea Energetica Electrica Is Still Building Its Track Record

Over the last 7, we have seen a slow decline in the dividend payments. Due to this, we are a little bit cautious about the payment consistency over a full economic cycle. The first annual payment during the last 7 years was RON0.72 in 2015, and the most recent fiscal year payment was RON0.45. This works out to be a decline of approximately 6.5% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. In the last five years, Societatea Energetica Electrica's earnings per share has shrunk at approximately 9.2% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

We're Not Big Fans Of Societatea Energetica Electrica's Dividend

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. The dividend doesn't inspire confidence that it will provide solid income in the future.

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 Societatea Energetica Electrica that you should be aware of before investing. Is Societatea Energetica Electrica not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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