Yahoo Finance Why CTS Eventim AG & Co. KGaA (ETR:EVD) Is A Dividend Rockstar
Dividend paying stocks like CTS Eventim AG & Co. KGaA (ETR:EVD) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
A slim 1.1% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, CTS Eventim KGaA could have potential. Some simple research can reduce the risk of buying CTS Eventim KGaA for its dividend - read on to learn more.
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Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, CTS Eventim KGaA paid out 47% of its profit as dividends. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. CTS Eventim KGaA's cash payout ratio in the last year was 29%, which suggests dividends were well covered by cash generated by the business. It's positive to see that CTS Eventim KGaA'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.
While the above analysis focuses on dividends relative to a company's earnings, we do note CTS Eventim KGaA's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Consider getting our latest analysis on CTS Eventim KGaA's financial position here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. CTS Eventim KGaA has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was €0.15 in 2010, compared to €0.62 last year. Dividends per share have grown at approximately 15% per year over this time.
With rapid dividend growth and no notable cuts to the dividend over a lengthy period of time, we think this company has a lot going for it.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see CTS Eventim KGaA has grown its earnings per share at 16% per annum over the past five years. A company paying out less than a quarter of its earnings as dividends, and growing earnings at more than 10% per annum, looks to be right in the cusp of its growth phase. At the right price, we might be interested.
Conclusion
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. That said, we were glad to see it growing earnings and paying a fairly consistent dividend. CTS Eventim KGaA has met all of our criteria, including having strong cash flow that covers the dividend. We definitely think it would be worthwhile looking closer.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 4 analysts we track are forecasting for CTS Eventim KGaA for free with public analyst estimates for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
