Fresenius Medical Care KGaA's (ETR:FME) Upcoming Dividend Will Be Larger Than Last Year's

Fresenius Medical Care AG & Co. KGaA's (ETR:FME) dividend will be increasing to €1.35 on 17th of May. This takes the annual payment to 2.2% of the current stock price, which is about average for the industry.

View our latest analysis for Fresenius Medical Care KGaA

Fresenius Medical Care KGaA'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, Fresenius Medical Care KGaA's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 5.5%. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Fresenius Medical Care KGaA Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was €0.69 in 2012, and the most recent fiscal year payment was €1.35. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Fresenius Medical Care KGaA May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Fresenius Medical Care KGaA has seen earnings per share falling at 2.4% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Fresenius Medical Care KGaA's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Fresenius Medical Care KGaA that investors should know about before committing capital to this stock. 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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