Mercedes-Benz Group (ETR:MBG) Will Pay A Larger Dividend Than Last Year At €5.30

Mercedes-Benz Group AG (ETR:MBG) will increase its dividend from last year's comparable payment on the 14th of May to €5.30. This takes the annual payment to 7.2% of the current stock price, which is about average for the industry.

View our latest analysis for Mercedes-Benz Group

Mercedes-Benz Group's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, based ont he last payment, Mercedes-Benz Group was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Over the next year, EPS is forecast to fall by 1.9%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 42%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was €2.25, compared to the most recent full-year payment of €5.30. This works out to be a compound annual growth rate (CAGR) of approximately 8.9% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Mercedes-Benz Group has seen EPS rising for the last five years, at 15% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Mercedes-Benz Group will make a great income stock. While Mercedes-Benz Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Mercedes-Benz Group you should be aware of, and 2 of them make us uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield 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.