Eutelsat Communications SA (EPA: ETL) will increase its dividend on November 18 to € 0.93. This will bring the dividend yield from 9.2% to 9.2%, which will give shareholders returns a big boost.

Check out our latest analysis for Eutelsat Communications

Eutelsat Communications revenues easily cover distributions

If the payments are not sustainable, a high return for a few years will not matter much. 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.

Earnings per share are expected to increase 29.1% over the next year. Assuming that the dividend continues according to recent trends, our estimates indicate that the payout ratio could reach 78%. It’s definitely on the upper side, but we wouldn’t necessarily say it’s not sustainable.

Dividend volatility

The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2011, the dividend has increased from € 0.76 to € 0.93. This implies that the company has increased its distributions at an annual rate of approximately 2.0% over that period. We are happy to see that the dividend has increased, but with a limited growth rate and fluctuations in payments, the total shareholder return may be limited.

Dividend growth can be hard to achieve

With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. Over the past five years, it appears Eutelsat Communications’ EPS has declined by around 9.3% per year. If profits continue to fall, the company may have to make the difficult choice of reducing the dividend or even stopping it altogether – the opposite of dividend growth. 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.

The dividend could prove to be unreliable

Overall, it’s probably not a high-income stock, although the dividend is in the process of being increased. The company generates a lot of cash, which could hold the dividend for a while, but the track record is not great. Overall, we don’t think this company has the makings of a good 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. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. As an example, we have identified 3 warning signs for Eutelsat Communications that you need to know before you invest. We have also set up a list of global stocks with a solid dividend.

If you decide to trade Eutelsat Communications, use the cheapest platform * which is ranked # 1 overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account. Promoted

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 the mentioned stocks.
^*Interactive Brokers Ranked Least Expensive Broker By StockBrokers.com Online Annual Review 2020

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.