The board of DIC Asset AG (ETR:DIC) has announced that it will be increasing its dividend on the 2nd of May to €0.75. This will take the dividend yield from 5.1% to 5.1%, providing a nice boost to shareholder returns.
DIC Asset's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 106% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
EPS is set to grow by 32.1% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 91% which is a bit high but can definitely be sustainable.
DIC Asset Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from €0.35 to €0.75. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
DIC Asset's Dividend Might Lack Growth
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. DIC Asset has impressed us by growing EPS at 30% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think DIC Asset's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for DIC Asset (of which 1 is a bit unpleasant!) you should know about. 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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