AlzChem Group AG's (ETR:ACT) dividend will be increasing from last year's payment of the same period to €1.05 on 16th of May. This makes the dividend yield about the same as the industry average at 5.2%.
Check out our latest analysis for AlzChem Group
AlzChem Group's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, AlzChem Group was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, earnings per share is forecast to rise by 0.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.
AlzChem Group's Dividend Has Lacked Consistency
It's comforting to see that AlzChem Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 5 years was €1.10 in 2018, and the most recent fiscal year payment was €1.05. Payments have been decreasing at a very slow pace in this time period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
We Could See AlzChem Group's Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that AlzChem Group has grown earnings per share at 7.9% 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.
In Summary
Overall, we always like to see the dividend being raised, but we don't think AlzChem Group will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
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. For example, we've identified 4 warning signs for AlzChem Group (3 can't be ignored!) that you should be aware of before investing. Is AlzChem Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.