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The board of DATAGROUP SE (ETR:D6H) has announced that the dividend on 21st of March will be reduced by 33% from last year's €1.50 to €1.00. However, the dividend yield of 3.4% is still a decent boost to shareholder returns.
See our latest analysis for DATAGROUP
DATAGROUP's Projected Earnings Seem Likely To Cover Future Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, DATAGROUP's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to rise by 47.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.
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. Since 2015, the dividend has gone from €0.20 total annually to €1.50. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. DATAGROUP has impressed us by growing EPS at 13% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
DATAGROUP Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that DATAGROUP has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 2 warning signs for DATAGROUP that investors should take into consideration. Is DATAGROUP 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.