Metall Zug (VTX:METN) Will Pay A Larger Dividend Than Last Year At CHF30.00

The board of 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 dividend yield from 1.4% to 1.4%, providing a nice boost to shareholder returns.

View our latest analysis for Metall Zug

Metall Zug's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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.

Looking forward, earnings per share is forecast to rise by 2.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. Since 2012, the dividend has gone from CHF55.00 to CHF30.00. Doing the maths, this is a decline of about 5.9% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 11% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Metall Zug's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Metall Zug that investors need to be conscious of moving forward. Is Metall Zug not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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