Gerresheimer (ETR:GXI) Has Announced A Dividend Of €1.25

The board of Gerresheimer AG (ETR:GXI) has announced that it will pay a dividend on the 10th of June, with investors receiving €1.25 per share. This means the annual payment is 1.6% of the current stock price, which is above the average for the industry.

See our latest analysis for Gerresheimer

Gerresheimer's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Gerresheimer was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 115.5%. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Gerresheimer Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was €0.75, compared to the most recent full-year payment of €1.25. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Gerresheimer May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, Gerresheimer has only grown its earnings per share at 4.3% per annum over the past five years. If Gerresheimer is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Gerresheimer (of which 1 can't be ignored!) you should know about. 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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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.