Mensch und Maschine Software's (ETR:MUM) Dividend Will Be Increased To €1.20

The board of Mensch und Maschine Software SE (ETR:MUM) has announced that it will be increasing its dividend on the 9th of June to €1.20. Based on the announced payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.

See our latest analysis for Mensch und Maschine Software

Mensch und Maschine Software's Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Mensch und Maschine Software was paying out 88% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

EPS is set to grow by 25.8% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 88%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Mensch und Maschine Software Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from €0.10 to €1.20. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Could Be Constrained

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Mensch und Maschine Software has impressed us by growing EPS at 26% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Mensch und Maschine Software is not retaining those earnings to reinvest in growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Mensch und Maschine Software's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Now, if you want to look closer, it would be worth checking out our free research on Mensch und Maschine Software management tenure, salary, and performance. 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.