Why You Might Be Interested In Fresenius SE & Co. KGaA (ETR:FRE) For Its Upcoming Dividend

By
Simply Wall St
Published
May 12, 2022
XTRA:FRE
Source: Shutterstock

Readers hoping to buy Fresenius SE & Co. KGaA (ETR:FRE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Fresenius SE KGaA investors that purchase the stock on or after the 16th of May will not receive the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be €0.92 per share. Last year, in total, the company distributed €0.92 to shareholders. Based on the last year's worth of payments, Fresenius SE KGaA stock has a trailing yield of around 2.7% on the current share price of €34.08. If you buy this business for its dividend, you should have an idea of whether Fresenius SE KGaA's dividend is reliable and sustainable. So we need to investigate whether Fresenius SE KGaA can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Fresenius SE KGaA

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fresenius SE KGaA paid out a comfortable 29% of its profit last year. A useful secondary check can be to evaluate whether Fresenius SE KGaA generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
XTRA:FRE Historic Dividend May 12th 2022

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Fresenius SE KGaA, with earnings per share up 2.4% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Fresenius SE KGaA has lifted its dividend by approximately 11% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Fresenius SE KGaA for the upcoming dividend? Earnings per share have been growing moderately, and Fresenius SE KGaA is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Fresenius SE KGaA is halfway there. There's a lot to like about Fresenius SE KGaA, and we would prioritise taking a closer look at it.

In light of that, while Fresenius SE KGaA has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Fresenius SE KGaA you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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