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Hensoldt AG (ETR:HAG) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of May to €0.50. This takes the annual payment to 0.7% of the current stock price, which unfortunately is below what the industry is paying.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hensoldt's stock price has increased by 83% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Hensoldt
Hensoldt's Future Dividend Projections Appear Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Hensoldt's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Over the next year, EPS is forecast to expand by 102.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 34% which would be quite comfortable going to take the dividend forward.
Hensoldt Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 4 years was €0.13 in 2021, and the most recent fiscal year payment was €0.50. This works out to be a compound annual growth rate (CAGR) of approximately 40% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Hensoldt's Dividend Might Lack Growth
Investors could be attracted to the stock based on the quality of its payment history. Hensoldt has impressed us by growing EPS at 66% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Hensoldt's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.