Givaudan (VTX:GIVN) Will Pay A Larger Dividend Than Last Year At CHF67.00
Givaudan SA (VTX:GIVN) will increase its dividend from last year's comparable payment on the 29th of March to CHF67.00. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.
Check out our latest analysis for Givaudan
Givaudan's Payment Has Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. At the time of the last dividend payment, Givaudan was paying out a very large proportion of what it was earning and 96% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
Looking forward, earnings per share is forecast to rise by 24.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 60%, which is in the range that makes us comfortable with the sustainability of the dividend.
Givaudan Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of CHF22.00 in 2013 to the most recent total annual payment of CHF67.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 3.5% per annum over the last five years, which admittedly is a bit slow. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
Our Thoughts On Givaudan's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Givaudan's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Givaudan that investors need to be conscious of moving forward. 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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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.
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