Telefónica Deutschland Holding AG (ETR:O2D) Goes Ex-Dividend Soon

It looks like Telefónica Deutschland Holding AG (ETR:O2D) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Telefónica Deutschland Holding's shares before the 18th of May in order to be eligible for the dividend, which will be paid on the 22nd of May.

The company's next dividend payment will be €0.18 per share, and in the last 12 months, the company paid a total of €0.18 per share. Calculating the last year's worth of payments shows that Telefónica Deutschland Holding has a trailing yield of 5.8% on the current share price of €3.088. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Telefónica Deutschland Holding

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Telefónica Deutschland Holding paid out 231% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 49% of its free cash flow in the past year.

It's good to see that while Telefónica Deutschland Holding's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Telefónica Deutschland Holding's earnings have been skyrocketing, up 61% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Telefónica Deutschland Holding has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. Telefónica Deutschland Holding is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid Telefónica Deutschland Holding? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Telefónica Deutschland Holding's paying out such a high percentage of its profit. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Telefónica Deutschland Holding for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Telefónica Deutschland Holding and you should be aware of it before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.