Leifheit (ETR:LEI) Has Announced That It Will Be Increasing Its Dividend To €1.20

Leifheit Aktiengesellschaft (ETR:LEI) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of June to €1.20. This will take the annual payment to 5.5% of the stock price, which is above what most companies in the industry pay.

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 Leifheit's stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

We've discovered 1 warning sign about Leifheit. View them for free.

Leifheit's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 135% of what it was earning and 80% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

EPS is set to grow by 70.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 81%, which is on the higher side, but certainly still feasible.

Check out our latest analysis for Leifheit

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 2015, the annual payment back then was €0.90, compared to the most recent full-year payment of €1.20. This implies that the company grew its distributions at a yearly rate of about 2.9% 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.

Leifheit May Have Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Leifheit has impressed us by growing EPS at 7.0% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Leifheit's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Leifheit is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Leifheit that investors need to be conscious of moving forward. 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.