Mensch und Maschine Software (ETR:MUM) Has Announced That It Will Be Increasing Its Dividend To €1.20

The board of Mensch und Maschine Software SE (ETR:MUM) has announced that it will be increasing its dividend on the 16th of May to €1.20. The announced payment will take the dividend yield to 2.0%, which is in line with the average for the industry.

See our latest analysis for Mensch und Maschine Software

Mensch und Maschine Software Is Paying Out More Than It Is Earning

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 95% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 64%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS could expand by 25.5% if the company continues along the path it has been on recently. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 95% over the next year.

Mensch und Maschine Software Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from €0.10 in 2012 to the most recent annual payment of €1.20. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Mensch und Maschine Software Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Mensch und Maschine Software has impressed us by growing EPS at 25% 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.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Mensch und Maschine Software that investors should know about before committing capital to this stock. 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.