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EnBW Energie Baden-Württemberg's (ETR:EBK) Upcoming Dividend Will Be Larger Than Last Year's

The board of EnBW Energie Baden-Württemberg AG (ETR:EBK) has announced that the dividend on 10th of May will be increased to €1.50, which will be 36% higher than last year's payment of €1.10 which covered the same period. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.

See our latest analysis for EnBW Energie Baden-Württemberg

EnBW Energie Baden-Württemberg's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, EnBW Energie Baden-Württemberg was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

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Over the next year, EPS could expand by 35.7% if recent trends continue. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was €0.69, compared to the most recent full-year payment of €1.10. This implies that the company grew its distributions at a yearly rate of about 4.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that EnBW Energie Baden-Württemberg has grown earnings per share at 36% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On EnBW Energie Baden-Württemberg's Dividend

In summary, while it's always good to see the dividend being raised, we don't think EnBW Energie Baden-Württemberg's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for EnBW Energie Baden-Württemberg (2 shouldn't be ignored!) that you should be aware of before investing. Is EnBW Energie Baden-Württemberg 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.