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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, LEG Immobilien AG (ETR:LEG) has paid a dividend to shareholders. It currently yields 3.1%. Let’s dig deeper into whether LEG Immobilien should have a place in your portfolio.

See our latest analysis for LEG Immobilien

5 checks you should use to assess a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has dividend per share amount increased over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

How well does LEG Immobilien fit our criteria?

The company currently pays out 24% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 65%, leading to a dividend yield of around 4.0%. However, EPS is forecasted to fall to €9.31 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider LEG Immobilien as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, LEG Immobilien has a yield of 3.1%, which is high for Real Estate stocks but still below the market’s top dividend payers.

Next Steps:

Whilst there are few things you may like about LEG Immobilien from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three fundamental aspects you should further examine: