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The board of SAP SE (ETR:SAP) has announced that it will be paying its dividend of €2.35 on the 16th of May, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.0% is only a modest boost to shareholder returns.
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SAP's Payment Could Potentially Have Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last dividend was quite easily covered by SAP's earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 75.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.
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SAP Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was €1.10, compared to the most recent full-year payment of €2.35. This means that it has been growing its distributions at 7.9% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend Has Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. SAP has seen EPS rising for the last five years, at 6.7% per annum. 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.
SAP Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 30 analysts we track are forecasting for SAP for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.