Yahoo Finance MTU Aero Engines (ETR:MTX) Is Paying Out Less In Dividends Than Last Year
MTU Aero Engines AG (ETR:MTX) is reducing its dividend from last year's comparable payment to €2.00 on the 14th of May. Based on this payment, the dividend yield will be 0.9%, which is lower than the average for the industry.
View our latest analysis for MTU Aero Engines
MTU Aero Engines Is Paying Out More Than It Is Earning
If it is predictable over a long period, even low dividend yields can be attractive. Even though MTU Aero Engines isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we could see the payout ratio reach 110%, which is on the unsustainable side.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of €1.35 in 2014 to the most recent total annual payment of €2.00. This implies that the company grew its distributions at a yearly rate of about 4.0% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Dividend Growth Potential Is Shaky
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. MTU Aero Engines' earnings per share has shrunk at 25% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
MTU Aero Engines' Dividend Doesn't Look Sustainable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
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. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
