Stock Analysis

Wacker Chemie (ETR:WCH) Will Pay A Larger Dividend Than Last Year At €12.00

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Wacker Chemie AG (ETR:WCH) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of May to €12.00. Based on this payment, the dividend yield for the company will be 5.4%, which is fairly typical for the industry.

Check out our latest analysis for Wacker Chemie

Wacker Chemie Doesn't Earn Enough To Cover Its Payments

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Wacker Chemie's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 49.4% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 112%, which is definitely a bit high to be sustainable going forward.

XTRA:WCH Historic Dividend March 17th 2023

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of €0.60 in 2013 to the most recent total annual payment of €8.00. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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 Wacker Chemie has grown earnings per share at 40% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Wacker Chemie Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Wacker Chemie (of which 1 is potentially serious!) 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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