secunet Security Networks' (ETR:YSN) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of secunet Security Networks Aktiengesellschaft (ETR:YSN) has announced that the dividend on 30th of May will be increased to €5.38, which will be 112% higher than last year. This will take the dividend yield from 0.6% to 1.3%, providing a nice boost to shareholder returns.

See our latest analysis for secunet Security Networks

secunet Security Networks Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, secunet Security Networks' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 3.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 111%, which could put the dividend in jeopardy if the company's earnings don't improve.

secunet Security Networks Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The first annual payment during the last 8 years was €0.15 in 2014, and the most recent fiscal year payment was €2.54. This works out to be a compound annual growth rate (CAGR) of approximately 42% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. secunet Security Networks has impressed us by growing EPS at 36% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

secunet Security Networks Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that secunet Security Networks is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for secunet Security Networks that investors should take into consideration. Is secunet Security Networks not quite the opportunity you were looking for? Why not check out our selection of top 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.