In This Article:
The board of SAP SE (ETR:SAP) has announced that the dividend on 16th of May will be increased to €2.35, which will be 6.8% higher than last year's payment of €2.20 which covered the same period. Despite this raise, the dividend yield of 0.8% is only a modest boost to shareholder returns.
Check out our latest analysis for SAP
SAP's Projected Earnings Seem Likely To Cover Future Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before this announcement, SAP was paying out 93% of earnings, but a comparatively small 58% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 30% which is fairly sustainable.
SAP Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from €1.00 total annually to €2.20. This implies that the company grew its distributions at a yearly rate of about 8.2% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. SAP hasn't seen much change in its earnings per share over the last five years.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think SAP's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for SAP that investors need to be conscious of moving forward. Is SAP not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.