Is DATA MODUL Aktiengesellschaft, Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) 2.1% Dividend Worth Your Time?

Dividend paying stocks like DATA MODUL Aktiengesellschaft, Produktion und Vertrieb von elektronischen Systemen (ETR:DAM) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A 2.1% yield is nothing to get excited about, but investors probably think the long payment history suggests DATA MODUL Produktion und Vertrieb von elektronischen Systemen has some staying power. Some simple research can reduce the risk of buying DATA MODUL Produktion und Vertrieb von elektronischen Systemen for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on DATA MODUL Produktion und Vertrieb von elektronischen Systemen!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 47% of DATA MODUL Produktion und Vertrieb von elektronischen Systemen's profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Plus, there is room to increase the payout ratio over time.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. DATA MODUL Produktion und Vertrieb von elektronischen Systemen's cash payout ratio last year was 5.8%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that DATA MODUL Produktion und Vertrieb von elektronischen Systemen's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

With a strong net cash balance, DATA MODUL Produktion und Vertrieb von elektronischen Systemen investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of DATA MODUL Produktion und Vertrieb von elektronischen Systemen'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. DATA MODUL Produktion und Vertrieb von elektronischen Systemen has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of 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 €0.4 in 2011, compared to €1.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. DATA MODUL Produktion und Vertrieb von elektronischen Systemen's dividend payments have fluctuated, so it hasn't grown 9.6% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. DATA MODUL Produktion und Vertrieb von elektronischen Systemen might have put its house in order since then, but we remain cautious.

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. It's not great to see that DATA MODUL Produktion und Vertrieb von elektronischen Systemen's have fallen at approximately 2.3% over the past five years. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

Conclusion

To summarise, shareholders should always check that DATA MODUL Produktion und Vertrieb von elektronischen Systemen's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. It's great to see that DATA MODUL Produktion und Vertrieb von elektronischen Systemen is paying out a low percentage of its earnings and cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In sum, we find it hard to get excited about DATA MODUL Produktion und Vertrieb von elektronischen Systemen from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for DATA MODUL Produktion und Vertrieb von elektronischen Systemen that investors need to be conscious of moving forward.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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