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. Based on this payment, the dividend yield on the company's stock will be 1.9%, which is an attractive boost to shareholder returns.

View our latest analysis for Gerresheimer

Gerresheimer's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 1,072% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 48.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, 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 first annual payment was €0.60, compared to the most recent full-year payment of €1.25. This means that it has been growing its distributions at 7.6% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

We Could See Gerresheimer's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Gerresheimer has grown earnings per share at 8.8% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Gerresheimer's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Gerresheimer that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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