Is HELLA GmbH & Co. KGaA (ETR:HLE) A Great Dividend Stock?

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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. HELLA GmbH & Co. KGaA (ETR:HLE) has paid a dividend to shareholders in the last few years. It currently yields 2.6%. Should it have a place in your portfolio? Let's take a look at HELLA GmbH KGaA in more detail.

Check out our latest analysis for HELLA GmbH KGaA

How I analyze a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% of dividend payers?
• Does it consistently pay out dividends without missing a payment of significantly cutting payout?
• Has the amount of dividend per share grown over the past?
• Is its earnings sufficient to payout dividend at the current rate?
• Will it be able to continue to payout at the current rate in the future?

How does HELLA GmbH KGaA fare?

The current trailing twelve-month payout ratio for the stock is 18%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 32% which, assuming the share price stays the same, leads to a dividend yield of around 3.1%. However, EPS is forecasted to fall to €4.62 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. The reality is that it is too early to consider HELLA GmbH KGaA as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, HELLA GmbH KGaA generates a yield of 2.6%, which is on the low-side for Auto Components stocks.

Next Steps:

Whilst there are few things you may like about HELLA GmbH KGaA from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I've put together three key factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for HLE’s future growth? Take a look at our free research report of analyst consensus for HLE’s outlook.
2. Valuation: What is HLE worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HLE is currently mispriced by the market.
3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.