The advice of Aperam S.A. (AMS:APAM) announced that it would increase its dividend on June 10 to €0.42. Although the dividend is now higher, the yield is only 4.2%, which is below the industry average.
Discover our latest analysis for Aperam
Aperam payment has strong revenue coverage
If predictable over a long period, even low dividend yields can be attractive. Prior to making this announcement, Aperam was easily earning enough to cover the dividend. This means that most of what the business earns is used to help it grow.
Over the next year, EPS is expected to fall 27.9%. If the dividend holds up on recent trends, we estimate the payout ratio could be 19%, which we consider quite comfortable, with most of the company’s earnings remaining to grow the business going forward. .
The company’s dividend history has been marked by instability, with at least 1 cut in the past 10 years. The first annual payment in the past 10 years was €0.52 in 2012, and the last payment in the fiscal year was €2.00. This means that it increased its distributions by 14% per year during this period. Aperam has increased its distributions at a rapid pace despite cutting the dividend at least once in the past. Companies that have cut once often cut again, so we would be cautious about buying these stocks just for the dividend income.
The dividend should increase
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. Aperam has seen EPS increase over the past five years, at 37% per year. Earnings have grown rapidly, and with a low payout ratio, we believe the company could prove to be an excellent dividend-paying stock.
Aperam looks like a big dividend stock
Overall, a dividend increase is always a good thing, and we think Aperam is a strong income stock thanks to its track record and growing earnings. Profits easily cover company distributions, and the company generates plenty of cash. If earnings fall over the next 12 months, the dividend could be shaken up a bit, but we don’t think that should cause too much of a problem in the long run. Overall, this checks a lot of the boxes we look for when choosing an income stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. Example: we have identified 4 warning signs for Aperam (2 of which don’t really suit us!) that you should know. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.