Mercedes-Benz Group's (ETR:MBG) Upcoming Dividend Will Be Larger Than Last Year's

Mercedes-Benz Group AG (ETR:MBG) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of May to €5.30. The payment will take the dividend yield to 7.2%, which is in line with the average for the industry.

View our latest analysis for Mercedes-Benz Group

Mercedes-Benz Group's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Mercedes-Benz Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 88% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share is forecast to fall by 3.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 42%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 2014, the dividend has gone from €2.20 total annually to €5.30. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. 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

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 15% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Mercedes-Benz Group's prospects of growing its dividend payments in the future.

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. Overall, we don't think this company has the makings of a good 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. Case in point: We've spotted 3 warning signs for Mercedes-Benz Group (of which 2 shouldn't be ignored!) 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.