Gerresheimer's (ETR:GXI) Dividend Will Be €1.25

The board of Gerresheimer AG (ETR:GXI) has announced that it will pay a dividend of €1.25 per share on the 10th of June. This means the annual payment is 1.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Gerresheimer

Gerresheimer's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Gerresheimer is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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 119.4%. If the dividend continues on this path, the payout ratio could be 18% 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. The annual payment during the last 10 years was €0.70 in 2014, and the most recent fiscal year payment was €1.25. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. 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.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Gerresheimer has seen earnings per share falling at 9.9% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Gerresheimer's payments, as there could be some issues with sustaining them into the future. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Gerresheimer that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.