Luka Koper d.d. (LJSE:LKPG) is reducing its dividend from last year's comparable payment to €1.14 on the 31st of August. Based on this payment, the dividend yield will be 2.8%, which is lower than the average for the industry.
Luka Koper d.d's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. However, based ont he last payment, Luka Koper d.d was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.
Unless the company can turn things around, EPS could fall by 3.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 40%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Luka Koper d.d's Dividend Has Lacked Consistency
Luka Koper d.d has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2013, the annual payment back then was €0.17, compared to the most recent full-year payment of €0.71. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Dividend Growth May Be Hard To Achieve
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. It's not great to see that Luka Koper d.d's earnings per share has fallen at approximately 3.1% per year over the past five years. 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.
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Luka Koper d.d has been making. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Luka Koper d.d 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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