Is RWE Aktiengesellschaft (FRA:RWE) A Great Dividend Stock?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 10 years, RWE Aktiengesellschaft (FRA:RWE) has returned an average of 4.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether RWE should have a place in your portfolio. Check out our latest analysis for RWE

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is its annual yield among the top 25% of dividend-paying companies?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

DB:RWE Historical Dividend Yield June 25th 18

Does RWE pass our checks?

The current trailing twelve-month payout ratio for the stock is 19.53%, which means that the dividend is covered by earnings. Going forward, analysts expect RWE’s payout to increase to 43.97% of its earnings, which leads to a dividend yield of 4.37%. However, EPS is forecasted to fall to €1.57 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from RWE fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

In terms of its peers, RWE generates a yield of 2.52%, which is on the low-side for Integrated Utilities stocks.

Next Steps:

Taking all the above into account, RWE is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three pertinent aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for RWE’s future growth? Take a look at our free research report of analyst consensus for RWE’s outlook.

2. Valuation: What is RWE worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RWE is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.