KPS (ETR:KSC) pays bigger dividend than last year

KPS S.A. (ETR:KSC) will increase its dividend on May 23 to €0.19. This will bring the annual payout from 4.1% to 4.1% of the share price, which is higher than most companies in the sector pay.

Check out our latest analysis for KPS

KPS revenue easily covers distributions

A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Prior to this announcement, KPS’ dividend was a fairly large proportion of earnings, but only 45% of free cash flow. In general, cash flow is more important than earnings, so we are confident that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is expected to grow by 0.7% over the next year. If recent dividend trends continue, the 12-month payout rate could be 76%, which is a bit high but can certainly be sustainable.

XTRA:KSC Historic dividend February 3, 2022

Dividend volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the past 10 years. The dividend went from €0.082 in 2012 to the last annual payment of €0.19. This equates to a compound annual growth rate (CAGR) of approximately 8.8% per year during this period. It’s good to see the dividend growing at a decent pace, but the dividend has been cut at least once in the past. KPS may have tidied up since then, but we remain cautious.

The dividend has limited growth potential

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate dividend growth in the future. Earnings per share for KPS have declined 16% annually over the past five years. A sharp drop in earnings per share is not terrible from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall enough. On the positive side, earnings should gain traction over the next year, but until that turns into a trend, we won’t feel too comfortable.

In summary

Overall, it’s probably not a great income stock, even though the dividend is being increased right now. The company generates a lot of cash, which could sustain the dividend for a while, but the balance sheet isn’t great. Overall, we don’t think this company has the makings of a good income stock.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. For example, we identified 1 warning sign for KPS which you should be aware of before investing. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.

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.

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