The board of Frequentis AG (ETR:FQT) has announced that it will be paying its dividend of €0.22 on the 7th of June, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 0.8% is only a modest boost to shareholder returns.

Check out our latest analysis for Frequentis

Frequentis' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, Frequentis' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 12.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, which is in the range that makes us comfortable with the sustainability of the dividend.

Frequentis Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of €0.15 in 2020 to the most recent total annual payment of €0.22. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Frequentis has impressed us by growing EPS at 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Frequentis Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Frequentis that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.