Yahoo Finance EnviTec Biogas (ETR:ETG) Could Be A Buy For Its Upcoming Dividend
EnviTec Biogas AG (ETR:ETG) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, EnviTec Biogas investors that purchase the stock on or after the 4th of July will not receive the dividend, which will be paid on the 6th of July.
The company's next dividend payment will be €2.00 per share. Last year, in total, the company distributed €2.00 to shareholders. Calculating the last year's worth of payments shows that EnviTec Biogas has a trailing yield of 4.0% on the current share price of €50.6. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether EnviTec Biogas can afford its dividend, and if the dividend could grow.
View our latest analysis for EnviTec Biogas
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. EnviTec Biogas paid out 65% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 25% of its free cash flow in the past year.
It's positive to see that EnviTec Biogas's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit EnviTec Biogas paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see EnviTec Biogas has grown its earnings rapidly, up 98% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, EnviTec Biogas could have strong prospects for future increases to the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. EnviTec Biogas has delivered 24% dividend growth per year on average over the past eight years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Is EnviTec Biogas worth buying for its dividend? EnviTec Biogas's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. EnviTec Biogas looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for EnviTec Biogas and you should be aware of them before buying any shares.
If you're in the market for strong dividend payers, we recommend checking 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.
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