Mytilineos SA (ATH:MYTIL) will increase its dividend on July 1 to €0.42. Based on the announced payout, the dividend yield for the company will be 2.7%, which is fairly typical for the industry.

See our latest analysis for Mytilineos

Mytilineos revenues easily cover distributions

While it’s always good to see a strong dividend yield, we also need to consider whether the payout is feasible. Based on the last payout, Mytilineos was earning enough to cover the dividend, but free cash flow was not positive. Since the company does not provide cash, payment to shareholders will become difficult at some point.

Over the next year, EPS is expected to increase by 56.4%. Assuming the dividend continues on recent trends, we think the payout ratio could be 23% by next year, which is in a fairly sustainable range.

Mytilineos continues to build its balance sheet

In retrospect, the dividend is stable, but the company has not paid a dividend for a very long time, so we cannot be sure that the dividend will remain stable in all economic environments. The first annual payment in the last 4 years was €0.32 in 2018, and the last payment in the fiscal year was €0.42. This implies that the company has increased its distributions at an annual rate of approximately 7.0% over this period. Investors will likely want to see a longer growth track record before making the decision to add it to their income portfolio.

The dividend should increase

Investors who have held shares of the company for the past few years will be pleased with the dividend income they have received. It is encouraging to see that Mytilineos has increased its earnings per share by 31% per year over the past five years. Earnings have grown rapidly, and with a low payout ratio, we believe the company could prove to be an excellent dividend-paying stock.

Our thoughts on the Mytilineos dividend

Overall, we still like to see the dividend increase, but we don’t think Mytilineos will make a great income stock. With no cash flow, it’s hard to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favor companies with a consistent and stable dividend policy as opposed to those with an irregular one. However, there are other things for investors to consider when analyzing stock performance. For example, we chose 2 warning signs for Mytilineos that investors should consider. If you are a dividend investor, you can also consult our curated list of high performing dividend stocks.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

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.