The board of Energiekontor AG (ETR:EKT) has announced that it will be increasing its dividend by 11% on the 22nd of May to €1.00, up from last year's comparable payment of €0.90. The payment will take the dividend yield to 1.2%, which is in line with the average for the industry.
Check out our latest analysis for Energiekontor
Energiekontor's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Energiekontor's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 73.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.
Energiekontor's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was €0.50 in 2014, and the most recent fiscal year payment was €0.90. This means that it has been growing its distributions at 6.7% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Energiekontor has seen EPS rising for the last five years, at 10% per annum. Energiekontor definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
We Really Like Energiekontor's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Energiekontor that investors should know about before committing capital to this stock. Is Energiekontor not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.