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Mercedes-Benz Group AG's (ETR:MBG) dividend is being reduced from last year's payment covering the same period to €4.30 on the 12th of May. However, the dividend yield of 8.2% is still a decent boost to shareholder returns.
Mercedes-Benz Group's Future Dividend Projections Appear Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Mercedes-Benz Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 2.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Mercedes-Benz Group
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €2.45 in 2015 to the most recent total annual payment of €4.30. This means that it has been growing its distributions at 5.8% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
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. We are encouraged to see that Mercedes-Benz Group has grown earnings per share at 37% per year over the past five years. Mercedes-Benz Group is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
Mercedes-Benz Group Looks Like A Great Dividend Stock
In general, we don't like to see the dividend being cut, especially when the company has such high potential like Mercedes-Benz Group does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Mercedes-Benz Group has 3 warning signs (and 2 which don't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.