MERCK Kommanditgesellschaft auf Aktien's (ETR:MRK) Dividend Will Be Increased To €1.85

MERCK Kommanditgesellschaft auf Aktien (ETR:MRK) will increase its dividend on the 27th of April to €1.85. Despite this raise, the dividend yield of 1.0% is only a modest boost to shareholder returns.

See our latest analysis for MERCK Kommanditgesellschaft auf Aktien

MERCK Kommanditgesellschaft auf Aktien's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, MERCK Kommanditgesellschaft auf Aktien's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 12.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

MERCK Kommanditgesellschaft auf Aktien Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the first annual payment was €0.75, compared to the most recent full-year payment of €1.85. This implies that the company grew its distributions at a yearly rate of about 9.4% 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.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. MERCK Kommanditgesellschaft auf Aktien has seen EPS rising for the last five years, at 13% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

MERCK Kommanditgesellschaft auf Aktien Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 17 analysts we track are forecasting for MERCK Kommanditgesellschaft auf Aktien for free with public analyst estimates for the company. 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.