PharmaMar Doesn't Earn Enough To Cover Its Payments .
If it is predictable over a long period, even low dividend yields can be attractive . Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making . Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high .
Earnings per share is forecast to rise by 4.1% over the next year . If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet .
PharmaMar Is Still Building Its Track Record .
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments . The annual payment during the last 4 years was €0.48 in 2020, and the most recent fiscal year payment was €0.65 . This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration . The dividend has been growing as a reasonable rate, which we like . However, investors will probably want to see a longer track record before they consider PharmaMar to be a consistent dividend paying stock .
Dividend Growth May Be Hard To Achieve .
The company's investors will be pleased to have been receiving dividend income for some time . With anaemic earnings growth, it's not confidence inspiring to see PharmaMar paying out more than double what it is earning . Meaning that on balance, the dividend is more likely to fall in the future than to grow .
The Dividend Could Prove To Be Unreliable .
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment . The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income .