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Gerresheimer AG's (ETR:GXI) investors are due to receive a payment of €1.25 per share on 13th of June. Based on this payment, the dividend yield on the company's stock will be 1.4%, which is an attractive boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Gerresheimer's stock price has increased by 36% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Gerresheimer
Gerresheimer's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Gerresheimer's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS is forecast to expand by 116.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.
Gerresheimer Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was €0.60 in 2013, and the most recent fiscal year payment was €1.25. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Gerresheimer May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Gerresheimer hasn't seen much change in its earnings per share over the last five years.
Our Thoughts On Gerresheimer's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Gerresheimer that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.