FORTEC Elektronik's (ETR:FEV) Shareholders Will Receive A Smaller Dividend Than Last Year

FORTEC Elektronik AG's (ETR:FEV) dividend is being reduced from last year's payment covering the same period to €0.40 on the 16th of February. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.

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FORTEC Elektronik's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, FORTEC Elektronik's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 113% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 158.0%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 33% which brings it into quite a comfortable range.

View our latest analysis for FORTEC Elektronik

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of €0.50 in 2015 to the most recent total annual payment of €0.40. Doing the maths, this is a decline of about 2.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 18% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

FORTEC Elektronik's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for FORTEC Elektronik that investors should know about before committing capital to this stock. 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.