Brenntag's (ETR:BNR) Dividend Will Be Increased To €1.45

Brenntag SE (ETR:BNR) has announced that it will be increasing its dividend on the 14th of June to €1.45. Despite this raise, the dividend yield of 1.9% is only a modest boost to shareholder returns.

Check out our latest analysis for Brenntag

Brenntag's Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last payment was quite easily covered by earnings, but it made up 118% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 54.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Brenntag Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was €0.47 in 2012, and the most recent fiscal year payment was €1.45. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. However, Brenntag has only grown its earnings per share at 4.5% per annum over the past five years. Brenntag is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Brenntag's Dividend

Overall, we always like to see the dividend being raised, but we don't think Brenntag will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Brenntag is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Brenntag has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. 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.