Zehnder Group (VTX:ZEHN) Is Increasing Its Dividend To CHF1.80

Zehnder Group AG (VTX:ZEHN) has announced that it will be increasing its dividend on the 13th of April to CHF1.80. This takes the annual payment to 2.2% of the current stock price, which is about average for the industry.

See our latest analysis for Zehnder Group

Zehnder Group's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, Zehnder Group's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 5.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 40%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from €0.48 in 2012 to the most recent annual payment of €1.72. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Zehnder Group has impressed us by growing EPS at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Zehnder Group Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Zehnder Group that you should be aware of before investing. Is Zehnder Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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