Deutsche Telekom (ETR:DTE) Is Increasing Its Dividend To €0.77

Deutsche Telekom AG's (ETR:DTE) dividend will be increasing from last year's payment of the same period to €0.77 on 15th of April. This makes the dividend yield about the same as the industry average at 3.5%.

See our latest analysis for Deutsche Telekom

Deutsche Telekom's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. The last payment made up 94% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 172.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Deutsche Telekom Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was €0.50, compared to the most recent full-year payment of €0.77. This implies that the company grew its distributions at a yearly rate of about 4.4% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

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. Deutsche Telekom has seen EPS rising for the last five years, at 13% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Deutsche Telekom's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payments look pretty sustainable with good earnings coverage and a reasonable track record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. As an example, we've identified 3 warning signs for Deutsche Telekom that you should be aware of before investing. 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.