Telefónica Deutschland Holding (ETR:O2D) Has Announced A Dividend Of €0.18

Telefónica Deutschland Holding AG's (ETR:O2D) investors are due to receive a payment of €0.18 per share on 24th of May. The dividend yield will be 6.2% based on this payment which is still above the industry average.

See our latest analysis for Telefónica Deutschland Holding

Telefónica Deutschland Holding Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Telefónica Deutschland Holding's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to fall by 82.8%. If the dividend continues along the path it has been on recently, the company could be paying out more than double what it is earning, which is definitely a bit high to be sustainable going forward.

Telefónica Deutschland Holding's Dividend Has Lacked Consistency

It's comforting to see that Telefónica Deutschland Holding has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2013, the dividend has gone from €0.45 to €0.18. This works out to be a decline of approximately 9.7% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Telefónica Deutschland Holding's Dividend Might Lack Growth

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see Telefónica Deutschland Holding has been growing its earnings per share at 50% a year over the past five years. EPS has been growing well, but Telefónica Deutschland Holding has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Telefónica Deutschland Holding's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Telefónica Deutschland Holding (of which 1 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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