Copa Holdings, S.A. (NYSE:CPA) has announced that it will pay a dividend of $1.61 per share on the 15th of September. The dividend yield will be 5.5% based on this payment which is still above the industry average.
Copa Holdings' Projected Earnings Seem Likely To Cover Future Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Copa Holdings' dividend was only 42% of earnings, however it was paying out 109% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Over the next year, EPS is forecast to expand by 28.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.
View our latest analysis for Copa Holdings
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $3.84 in 2015, and the most recent fiscal year payment was $6.44. This means that it has been growing its distributions at 5.3% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Copa Holdings might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Copa Holdings has seen EPS rising for the last five years, at 59% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Copa Holdings could prove to be a strong dividend payer.
Our Thoughts On Copa Holdings' Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Copa Holdings that investors should know about before committing capital to this stock. Is Copa Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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