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. However, the dividend yield of 8.7% is still a decent boost to shareholder returns.

See our latest analysis for Mercedes-Benz Group

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Mercedes-Benz Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 8.8%. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.

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 2015, the annual payment back then was €2.25, compared to the most recent full-year payment of €5.30. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Mercedes-Benz Group might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Mercedes-Benz Group has impressed us by growing EPS 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.

We Really Like Mercedes-Benz Group's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Mercedes-Benz Group has the makings of a solid income stock moving forward. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Mercedes-Benz Group you should be aware of, and 1 of them is concerning. 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.