Should You Buy Dermapharm Holding SE (ETR:DMP) For Its Upcoming Dividend?

Dermapharm Holding SE (ETR:DMP) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Dermapharm Holding investors that purchase the stock on or after the 27th of June will not receive the dividend, which will be paid on the 1st of July.

The company's upcoming dividend is €0.90 a share, following on from the last 12 months, when the company distributed a total of €0.90 per share to shareholders. Looking at the last 12 months of distributions, Dermapharm Holding has a trailing yield of approximately 2.7% on its current stock price of €33.75. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Dermapharm Holding can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Dermapharm Holding's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Dermapharm Holding generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Dermapharm Holding

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Dermapharm Holding earnings per share are up 6.1% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Dermapharm Holding has lifted its dividend by approximately 2.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Dermapharm Holding worth buying for its dividend? Earnings per share growth has been growing somewhat, and Dermapharm Holding is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Dermapharm Holding is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Dermapharm Holding, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Dermapharm Holding is facing. For example, we've found 2 warning signs for Dermapharm Holding (1 is potentially serious!) that deserve your attention before investing in the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.