Metall Zug (VTX:METN) Is Paying Out A Larger Dividend Than Last Year

Metall Zug AG (VTX:METN) has announced that it will be increasing its dividend on the 5th of May to CHF30.00. This will take the annual payment from 1.5% to 1.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Metall Zug

Metall Zug's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. But before making this announcement, Metall Zug's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 95% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

EPS is set to fall by 3.1% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 24%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from CHF55.00 in 2012 to the most recent annual payment of CHF30.00. Doing the maths, this is a decline of about 5.9% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though Metall Zug's EPS has declined at around 11% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Metall Zug's Dividend

Overall, we always like to see the dividend being raised, but we don't think Metall Zug will make a great income stock. While Metall Zug is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Metall Zug 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.