Eutelsat Communications SA (EPA: ETL) will increase its dividend on November 18 to € 0.93. This brings the dividend yield from 9.0% to 9.0%, which shareholders will be delighted with.

Check out our latest review for Eutelsat Communications

Eutelsat Communications revenues easily cover distributions

Impressive dividend yields are good, but it doesn’t matter much if the payouts can’t be sustained. Based on the last payment, Eutelsat Communications’ profits did not cover the dividend, but the company was generating enough cash instead. Since dividend is an outflow of cash, we believe cash is more important than accounting measures of profit when valuing dividend, so this is a mitigating factor.

Over the next year, EPS is expected to increase by 30.6%. If the dividend continues to grow according to recent trends, we estimate that the payout ratio could reach 77%, which is higher, but certainly still doable.

ENXTPA: Historic ETL dividend September 30, 2021

Dividend volatility

The company has a long history of dividends, but it doesn’t look good with the cuts of the past. The dividend went from € 0.76 in 2011 to the last annual payment of € 0.93. This implies that the company has increased its distributions at an annual rate of approximately 2.0% over that period. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, making it less attractive as a income investment.

Dividend growth is questionable

With a relatively volatile dividend, it is even more important to see if earnings per share increase. It’s not great to see that Eutelsat Communications’ earnings per share have fallen about 9.3% per year over the past five years. If the company earns less over time, it naturally follows that it will also have to pay less dividends. Profits are expected to rise over the next 12 months and if that happens we could still be a little cautious until it becomes a trend.

Eutelsat Communications dividend does not seem sustainable

In summary, while it’s always good to see the dividend increase, we don’t think Eutelsat Communications’ payouts are strong. In the past, payments have been volatile, but in the short term the dividend could be reliable as the company generates enough cash to cover it. We would be a little cautious if we were relying on this security primarily for dividend income.

Investors generally tend to favor companies with a consistent and stable dividend policy over those that operate irregularly. Meanwhile, despite the importance of dividend payments, they aren’t the only factors our readers should be aware of when valuing a business. Taking the debate a step further, we identified 3 warning signs for Eutelsat Communications that investors need to be aware of moving forward. If you are a dividend investor, you can also view 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 using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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