Stratec's (ETR:SBS) Upcoming Dividend Will Be Larger Than Last Year's

The board of Stratec SE (ETR:SBS) has announced that it will be increasing its dividend by 2.1% on the 22nd of May to €0.97, up from last year's comparable payment of €0.95. The payment will take the dividend yield to 1.5%, which is in line with the average for the industry.

View our latest analysis for Stratec

Stratec's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Stratec's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 46.0%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

Stratec Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of €0.55 in 2013 to the most recent total annual payment of €0.95. This means that it has been growing its distributions at 5.6% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Stratec May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Stratec hasn't seen much change in its earnings per share over the last five years. The company has been growing at a pretty soft 1.5% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Stratec will make a great income stock. While Stratec is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 6 Stratec analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Stratec 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.