Gerresheimer (ETR:GXI) Will Pay A Dividend Of €1.25

The board of Gerresheimer AG (ETR:GXI) has announced that it will pay a dividend on the 13th of June, with investors receiving €1.25 per share. This makes the dividend yield 1.8%, which will augment investor returns quite nicely.

View our latest analysis for Gerresheimer

Gerresheimer's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 1,072% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 46.6%. 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 a sustained record of paying dividends with very little fluctuation. 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. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Gerresheimer Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Gerresheimer has seen EPS rising for the last five years, at 8.8% per annum. 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, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Gerresheimer is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Gerresheimer that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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