Zumtobel Group AG (VIE:ZAG) will increase its dividend from last year's comparable payment on the 5th of August to €0.35. This will take the annual payment to 5.3% of the stock price, which is above what most companies in the industry pay.
Zumtobel Group's Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Zumtobel Group was paying a whopping 123% as a dividend, but this only made up 33% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
EPS is set to fall by 3.4% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 33%, which is comfortable for the company to continue in the future.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from €0.20 total annually to €0.35. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. 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. Zumtobel Group has impressed us by growing EPS at 15% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Zumtobel Group's prospects of growing its dividend payments in the future.
Our Thoughts On Zumtobel Group's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.
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 Zumtobel Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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