Gerresheimer (ETR:GXI) Has Affirmed Its Dividend Of €1.25

The board of Gerresheimer AG (ETR:GXI) has announced that it will pay a dividend of €1.25 per share on the 13th of June. This means the annual payment is 1.9% of the current stock price, which is above the average for the industry.

See our latest analysis for Gerresheimer

Gerresheimer's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 702% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 43.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

Gerresheimer Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from €0.60 to €1.25. This means that it has been growing its distributions at 7.6% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

We Could See Gerresheimer's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Gerresheimer has grown earnings per share at 7.7% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Gerresheimer is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Gerresheimer (of which 1 doesn't sit too well with us!) you should know about. Is Gerresheimer 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.