Does Deutsche Grundstücksauktionen AG (ETR:DGR) Have A Place In Your Dividend Portfolio?

Today we'll take a closer look at Deutsche Grundstücksauktionen AG (ETR:DGR) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A slim 1.0% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Deutsche Grundstücksauktionen could have potential. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on Deutsche Grundstücksauktionen!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Deutsche Grundstücksauktionen paid out 45% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

While the above analysis focuses on dividends relative to a company's earnings, we do note Deutsche Grundstücksauktionen's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Deutsche Grundstücksauktionen's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Deutsche Grundstücksauktionen's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was €0.1 in 2010, compared to €0.1 last year. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. Deutsche Grundstücksauktionen's dividend payments have fluctuated, so it hasn't grown 4.1% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Deutsche Grundstücksauktionen's EPS have declined at around 13% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're glad to see Deutsche Grundstücksauktionen has a low payout ratio, as this suggests earnings are being reinvested in the business. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, we're unenthused by Deutsche Grundstücksauktionen as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 identified 4 warning signs for Deutsche Grundstücksauktionen (1 can't be ignored!) that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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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