ElringKlinger (ETR:ZIL2) Will Pay A Dividend Of €0.15

The board of ElringKlinger AG (ETR:ZIL2) has announced that it will pay a dividend on the 21st of May, with investors receiving €0.15 per share. This makes the dividend yield 3.1%, which will augment investor returns quite nicely.

We've discovered 1 warning sign about ElringKlinger. View them for free.

ElringKlinger's Long-term Dividend Outlook appears Promising

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even though ElringKlinger isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 0.9%, so there isn't too much pressure on the dividend.

See our latest analysis for ElringKlinger

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 dividend has gone from €0.55 total annually to €0.15. Dividend payments have fallen sharply, down 73% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. ElringKlinger's earnings per share has shrunk at 10% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ElringKlinger's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for ElringKlinger that investors need to be conscious of moving forward. 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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