Mercedes-Benz Group (ETR:MBG) Has Announced That Its Dividend Will Be Reduced To €4.30

Mercedes-Benz Group AG (ETR:MBG) has announced it will be reducing its dividend payable on the 12th of May to €4.30, which is 19% lower than what investors received last year for the same period. This means the annual payment is 9.0% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Mercedes-Benz Group

Mercedes-Benz Group's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Mercedes-Benz Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 9.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of €2.25 in 2015 to the most recent total annual payment of €5.30. This works out to be a compound annual growth rate (CAGR) of approximately 8.9% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Mercedes-Benz Group has grown earnings per share at 25% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Mercedes-Benz Group could prove to be a strong dividend payer.

Mercedes-Benz Group Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Mercedes-Benz Group does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Mercedes-Benz Group has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Mercedes-Benz Group not quite the opportunity you were looking for? Why not check out our selection of top 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.