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Bastei Lübbe AG's (ETR:BST) dividend will be increasing from last year's payment of the same period to €0.30 on 16th of September. Despite this raise, the dividend yield of 3.4% is only a modest boost to shareholder returns.
See our latest analysis for Bastei Lübbe
Bastei Lübbe's Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Bastei Lübbe's dividend was only 40% of earnings, however it was paying out 173% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
EPS is set to fall by 7.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 44%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
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 dividend has gone from an annual total of €0.28 in 2014 to the most recent total annual payment of €0.30. Dividend payments have grown at less than 1% a year over this period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Bastei Lübbe has grown earnings per share at 29% per year over the past five years. 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 Bastei Lübbe could prove to be a strong dividend payer.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Bastei Lübbe will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Bastei Lübbe is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Bastei Lübbe has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.