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Mercedes-Benz Group AG's (ETR:MBG) dividend is being reduced from last year's payment covering the same period to €4.30 on the 12th of May. This means that the annual payment will be 7.2% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Mercedes-Benz Group
Mercedes-Benz Group's Projected Earnings Seem Likely To Cover Future Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Mercedes-Benz Group was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 17.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was €2.25, compared to the most recent full-year payment of €4.30. This works out to be a compound annual growth rate (CAGR) of approximately 6.7% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Mercedes-Benz Group might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Mercedes-Benz Group has grown earnings per share at 37% 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 Mercedes-Benz Group could prove to be a strong dividend payer.
We Really Like Mercedes-Benz Group's Dividend
In general, we don't like to see the dividend being cut, especially when the company has such high potential like Mercedes-Benz Group does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Mercedes-Benz Group (1 is potentially serious!) that you should be aware of before investing. Is Mercedes-Benz Group 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.
