Wacker Chemie (ETR:WCH) Is Paying Out A Larger Dividend Than Last Year

The board of Wacker Chemie AG (ETR:WCH) has announced that it will be paying its dividend of €12.00 on the 23rd of May, an increased payment from last year's comparable dividend. This will take the annual payment to 8.2% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Wacker Chemie

Wacker Chemie Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Wacker Chemie is earning enough to cover the payment, but then it makes up 106% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 53.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 131%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was €0.60, compared to the most recent full-year payment of €12.00. This means that it has been growing its distributions at 35% 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. Wacker Chemie has seen EPS rising for the last five years, at 40% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Wacker Chemie's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Wacker Chemie's payments are rock solid. While Wacker Chemie is earning enough to cover the payments, the cash flows are lacking. We don't think Wacker Chemie is a great stock to add to your portfolio if income is your focus.

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. To that end, Wacker Chemie has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Wacker Chemie 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.