Is It Worth Considering Pfeiffer Vacuum Technology AG (ETR:PFV) For Its Upcoming Dividend?

By
Simply Wall St
Published
May 16, 2022
XTRA:PFV
Source: Shutterstock

Readers hoping to buy Pfeiffer Vacuum Technology AG (ETR:PFV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Pfeiffer Vacuum Technology's shares before the 20th of May in order to receive the dividend, which the company will pay on the 24th of May.

The company's next dividend payment will be €4.08 per share. Last year, in total, the company distributed €4.08 to shareholders. Looking at the last 12 months of distributions, Pfeiffer Vacuum Technology has a trailing yield of approximately 2.6% on its current stock price of €158.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Pfeiffer Vacuum Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Pfeiffer Vacuum Technology paid out 59% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
XTRA:PFV Historic Dividend May 16th 2022

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Pfeiffer Vacuum Technology, with earnings per share up 7.7% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Pfeiffer Vacuum Technology has lifted its dividend by approximately 2.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Pfeiffer Vacuum Technology for the upcoming dividend? While earnings per share growth has been modest, Pfeiffer Vacuum Technology's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Pfeiffer Vacuum Technology today.

So while Pfeiffer Vacuum Technology looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Pfeiffer Vacuum Technology and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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