Hensoldt (ETR:5UH) Is Increasing Its Dividend To €0.40

The board of Hensoldt AG (ETR:5UH) has announced that it will be paying its dividend of €0.40 on the 22nd of May, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.9%, which is below the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hensoldt's stock price has increased by 78% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Hensoldt

Hensoldt's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last payment made up 79% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 23% which is fairly sustainable.

Hensoldt Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of €0.13 in 2021 to the most recent total annual payment of €0.40. This implies that the company grew its distributions at a yearly rate of about 45% over that duration. Hensoldt has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Hensoldt has been growing its earnings per share at 65% a year over the past three years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Hensoldt hasn't been doing.

Our Thoughts On Hensoldt's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hensoldt's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Hensoldt that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.