Telefónica Deutschland Holding (ETR:O2D) Is Due To Pay A Dividend Of €0.18

The board of Telefónica Deutschland Holding AG (ETR:O2D) has announced that it will pay a dividend of €0.18 per share on the 23rd of May. Based on this payment, the dividend yield on the company's stock will be 6.4%, which is an attractive boost to shareholder returns.

See our latest analysis for Telefónica Deutschland Holding

Telefónica Deutschland Holding Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 231% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 49%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 93.6%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 111%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from €0.45 total annually to €0.18. Doing the maths, this is a decline of about 8.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Telefónica Deutschland Holding's Dividend Might Lack Growth

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Telefónica Deutschland Holding has grown earnings per share at 61% per 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.

Our Thoughts On Telefónica Deutschland Holding's Dividend

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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Telefónica Deutschland Holding that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated 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.