Heineken (AMS:HEIA) Will Pay A Dividend Of €1.04

Heineken N.V.’s (AMS:HEIA) investors are due to receive a payment of €1.04 per share on 7th of May. This means that the annual payment will be 2.0% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Heineken

Heineken’s Dividend Is Well Covered By Earnings

We aren’t too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Heineken’s dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 48.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.89 in 2014, and the most recent fiscal year payment was €1.73. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Heineken May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Earnings have grown at around 4.0% a year for the past five years, which isn’t massive but still better than seeing them shrink. Growth of 4.0% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn’t have the growth potential we look for going into the future.

In Summary

Overall, we think that Heineken could make a reasonable income stock, even though it did cut the dividend this year. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we’ve identified 2 warning signs for Heineken that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.