KWS SAAT SE KGaA (ETR:KWS) Is Paying Out A Larger Dividend Than Last Year

KWS SAAT SE & Co. KGaA (ETR:KWS) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of December to €0.90. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

Check out our latest analysis for KWS SAAT SE KGaA

KWS SAAT SE KGaA's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, KWS SAAT SE KGaA 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 85% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

The next year is set to see EPS grow by 36.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

KWS SAAT SE KGaA Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of €0.56 in 2013 to the most recent total annual payment of €0.90. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

KWS SAAT SE KGaA May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 5.0% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, KWS SAAT SE KGaA has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On KWS SAAT SE KGaA's Dividend

Overall, we always like to see the dividend being raised, but we don't think KWS SAAT SE KGaA will make a great income stock. While KWS SAAT SE KGaA is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 3 KWS SAAT SE KGaA analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is KWS SAAT SE KGaA 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.