Deutsche Pfandbriefbank (ETR:PBB) Is Increasing Its Dividend To €1.18

The board of Deutsche Pfandbriefbank AG (ETR:PBB) has announced that it will be increasing its dividend on the 24th of May to €1.18. This makes the dividend yield 13%, which is above the industry average.

See our latest analysis for Deutsche Pfandbriefbank

Deutsche Pfandbriefbank Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Deutsche Pfandbriefbank's dividend made up quite a large proportion of earnings but only 26% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 26.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 132%, which could put the dividend under pressure if earnings don't start to improve.

Deutsche Pfandbriefbank's Dividend Has Lacked Consistency

It's comforting to see that Deutsche Pfandbriefbank has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 6 years was €0.43 in 2016, and the most recent fiscal year payment was €1.18. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, Deutsche Pfandbriefbank's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Deutsche Pfandbriefbank (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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