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The board of Savaria Corporation (TSE:SIS) has announced that it will pay a dividend of CA$0.042 per share on the 11th of February. Based on this payment, the dividend yield on the company's stock will be 2.5%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Savaria
Savaria's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Savaria's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Earnings per share is forecast to rise by 59.8% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from CA$0.10 in 2012 to the most recent annual payment of CA$0.50. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
There Isn't Much Room To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Savaria has seen EPS rising for the last five years, at 5.3% per annum. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
We'd also point out that Savaria has issued stock equal to 26% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Savaria's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Savaria has 4 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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.