Fresenius Medical Care (ETR:FME) Is Increasing Its Dividend To €1.44

Fresenius Medical Care AG (ETR:FME) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of May to €1.44. This makes the dividend yield about the same as the industry average at 3.2%.

View our latest analysis for Fresenius Medical Care

Fresenius Medical Care's Projected Earnings Seem Likely To Cover Future Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Fresenius Medical Care was paying out 79% of earnings, but a comparatively small 25% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 134.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 35% which would be quite comfortable going to take the dividend forward.

Fresenius Medical Care Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.78 in 2015, and the most recent fiscal year payment was €1.44. This works out to be a compound annual growth rate (CAGR) of approximately 6.3% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though Fresenius Medical Care's EPS has declined at around 14% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Fresenius Medical Care's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Fresenius Medical Care's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 18 analysts are forecasting a turnaround in our free collection of analyst estimates here. Is Fresenius Medical Care not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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