Energiekontor's (ETR:EKT) Upcoming Dividend Will Be Larger Than Last Year's

The board of Energiekontor AG (ETR:EKT) has announced that it will be increasing its dividend by 13% on the 18th of May to €0.90. The announced payment will take the dividend yield to 1.0%, which is in line with the average for the industry.

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 Energiekontor's stock price has increased by 30% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Energiekontor

Energiekontor's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Energiekontor was paying out 73% of earnings, but a comparatively small of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 149.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 30% by next year, which is in a pretty sustainable range.

Energiekontor's Dividend Has Lacked Consistency

Looking back, Energiekontor's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the dividend has gone from €0.50 to €0.80. This means that it has been growing its distributions at 6.1% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Energiekontor's EPS has declined at around 6.3% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Energiekontor's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Energiekontor is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Energiekontor has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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