K+S' (ETR:SDF) Dividend Is Being Reduced To €0.15

K+S Aktiengesellschaft (ETR:SDF) has announced that on 19th of May, it will be paying a dividend of€0.15, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 1.2%, which is lower than the average for the industry.

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K+S' Long-term Dividend Outlook appears Promising

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. K+S is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 9.2%, which makes us pretty comfortable with the sustainability of the dividend.

Check out our latest analysis for K+S

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 €0.90 in 2015 to the most recent total annual payment of €0.15. Dividend payments have fallen sharply, down 83% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Company Could Face Some Challenges Growing The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's encouraging to see that K+S has been growing its earnings per share at 23% a year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 16 analysts we track are forecasting for K+S for free with public analyst estimates for the company . Is K+S 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.