Heidelberg Materials (ETR:HEI) Is Increasing Its Dividend To €3.30

The board of Heidelberg Materials AG (ETR:HEI) has announced that it will be increasing its dividend by 10.0% on the 20th of May to €3.30, up from last year's comparable payment of €3.00. Even though the dividend went up, the yield is still quite low at only 1.9%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Heidelberg Materials' stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Heidelberg Materials' Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Heidelberg Materials' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 57.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Heidelberg Materials

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €0.75 in 2015 to the most recent total annual payment of €3.00. This means that it has been growing its distributions at 15% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Heidelberg Materials has grown earnings per share at 12% per year over the past five years. Heidelberg Materials definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Heidelberg Materials' Dividend

Overall, a dividend increase is always good, and we think that Heidelberg Materials is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an 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. For example, we've picked out 1 warning sign for Heidelberg Materials that investors should know about before committing capital to this stock. Is Heidelberg Materials not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.