DEFAMA Deutsche Fachmarkt AG (ETR:DEF) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy DEFAMA Deutsche Fachmarkt AG (ETR:DEF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase DEFAMA Deutsche Fachmarkt's shares on or after the 8th of July will not receive the dividend, which will be paid on the 10th of July.

The company's next dividend payment will be €0.57 per share, on the back of last year when the company paid a total of €0.57 to shareholders. Based on the last year's worth of payments, DEFAMA Deutsche Fachmarkt has a trailing yield of 2.1% on the current stock price of €26.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether DEFAMA Deutsche Fachmarkt can afford its dividend, and if the dividend could grow.

See our latest analysis for DEFAMA Deutsche Fachmarkt

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. DEFAMA Deutsche Fachmarkt is paying out an acceptable 66% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 20% of its free cash flow in the last year.

It's positive to see that DEFAMA Deutsche Fachmarkt's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit DEFAMA Deutsche Fachmarkt paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see DEFAMA Deutsche Fachmarkt's earnings per share have risen 13% per annum over the last five years. DEFAMA Deutsche Fachmarkt is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, DEFAMA Deutsche Fachmarkt has lifted its dividend by approximately 9.0% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has DEFAMA Deutsche Fachmarkt got what it takes to maintain its dividend payments? DEFAMA Deutsche Fachmarkt's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

In light of that, while DEFAMA Deutsche Fachmarkt has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with DEFAMA Deutsche Fachmarkt (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.

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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.

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