Yahoo Finance Befesa's (ETR:BFSA) Dividend Is Being Reduced To €0.73
Befesa S.A. (ETR:BFSA) is reducing its dividend to €0.73 on the 25th of Junewhich is 42% less than last year's comparable payment of €1.25. Despite the cut, the dividend yield of 4.2% will still be comparable to other companies in the industry.
See our latest analysis for Befesa
Befesa's Earnings Easily Cover The Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 107% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Looking forward, earnings per share is forecast to rise by 183.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Befesa's Dividend Has Lacked Consistency
Looking back, Befesa's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the dividend has gone from €0.73 total annually to €1.25. This means that it has been growing its distributions at 9.4% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Befesa's earnings per share has shrunk at 10% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
Befesa's Dividend Doesn't Look Great
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 seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Befesa has 4 warning signs (and 2 which are significant) we think you should know about. Is Befesa 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.
