Pharma Mar (BME:PHM) Has Announced That It Will Be Increasing Its Dividend To €0.80

Pharma Mar, S.A. (BME:PHM) will increase its dividend from last year's comparable payment on the 27th of June to €0.80. Even though the dividend went up, the yield is still quite low at only 0.9%.

We've discovered 2 warning signs about Pharma Mar. View them for free.

Pharma Mar's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Pharma Mar's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 170.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Pharma Mar

Pharma Mar Doesn't Have A Long Payment History

It is great to see that Pharma Mar has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2020, the dividend has gone from €0.48 total annually to €0.80. This means that it has been growing its distributions at 11% per annum over that time. Pharma Mar has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Pharma Mar is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Pharma Mar will make a great income stock. While Pharma Mar is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Pharma Mar that investors need to be conscious of moving forward. Is Pharma Mar not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.