Estée Lauder Companies (NYSE:EL) Will Pay A Dividend Of $0.35

The board of The Estée Lauder Companies Inc. (NYSE:EL) has announced that it will pay a dividend of $0.35 per share on the 15th of December. This means the annual payment will be 1.5% of the current stock price, which is lower than the industry average.

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Estée Lauder Companies' Future Dividend Projections Seem Positive

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Even though Estée Lauder Companies isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 44%, which we would be comfortable to see continuing.

View our latest analysis for Estée Lauder Companies

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.96 in 2015, and the most recent fiscal year payment was $1.40. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Estée Lauder Companies' EPS has declined at around 48% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Estée Lauder Companies' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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.

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. For example, we've picked out 1 warning sign for Estée Lauder Companies that investors should know about before committing capital to this stock. Is Estée Lauder Companies 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.