Societatea Energetica Electrica's (BVB:EL) Dividend Is Being Reduced To RON0.45

Societatea Energetica Electrica S.A. (BVB:EL) has announced it will be reducing its dividend payable on the 17th of June to RON0.45. The dividend yield of 5.2% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Societatea Energetica Electrica

Societatea Energetica Electrica Might Find It Hard To Continue The Dividend

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even though Societatea Energetica Electrica is not generating a profit, it is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Over the next year, EPS might fall by 23.8% based on recent performance. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Societatea Energetica Electrica Doesn't Have A Long Payment History

The company has been paying a dividend for a while, but the track record hasn't been the best. 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. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Societatea Energetica Electrica's earnings per share has shrunk at 24% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

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. Overall, the dividend is not reliable enough to make this a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Societatea Energetica Electrica that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.