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

Mercedes-Benz Group AG (ETR:MBG) is reducing its dividend from last year's comparable payment to €4.30 on the 12th of May. The yield is still above the industry average at 8.0%.

Our free stock report includes 2 warning signs investors should be aware of before investing in Mercedes-Benz Group. Read for free now.

Mercedes-Benz Group's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. 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.

Looking forward, earnings per share is forecast to rise by 12.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

View our latest analysis for Mercedes-Benz Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €2.45 in 2015 to the most recent total annual payment of €4.30. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Mercedes-Benz Group has been growing its earnings per share at 92% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Mercedes-Benz Group Looks Like A Great Dividend Stock

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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Mercedes-Benz Group has 2 warning signs (and 1 which is concerning) 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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