Deutsche EuroShop's (ETR:DEQ) Shareholders Will Receive A Bigger Dividend Than Last Year

Deutsche EuroShop AG (ETR:DEQ) will increase its dividend from last year's comparable payment on the 3rd of September to €2.60. The payment will take the dividend yield to 3.1%, which is in line with the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Deutsche EuroShop's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Deutsche EuroShop

Deutsche EuroShop Is Paying Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Even though Deutsche EuroShop isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 1,033%.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from €1.25 total annually to €0.80. This works out to be a decline of approximately 4.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Deutsche EuroShop May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Deutsche EuroShop's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Deutsche EuroShop has 2 warning signs (and 1 which can't be ignored) we think you should know about. 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.