Pfeiffer Vacuum Technology's (ETR:PFV) Shareholders Will Receive A Bigger Dividend Than Last Year

Pfeiffer Vacuum Technology AG's (ETR:PFV) dividend will be increasing to €4.08 on 24th of May. The announced payment will take the dividend yield to 2.5%, which is in line with the average for the industry.

See our latest analysis for Pfeiffer Vacuum Technology

Pfeiffer Vacuum Technology's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Pfeiffer Vacuum Technology was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 81% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 32.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 44%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from €3.15 to €4.08. This implies that the company grew its distributions at a yearly rate of about 2.6% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Pfeiffer Vacuum Technology Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pfeiffer Vacuum Technology has seen EPS rising for the last five years, at 5.7% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Pfeiffer Vacuum Technology's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Pfeiffer Vacuum Technology's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Pfeiffer Vacuum Technology that you should be aware of before investing. Is Pfeiffer Vacuum Technology not quite the opportunity you were looking for? Why not check out our selection of top 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.