United Internet (ETR:UTDI) Is Paying Out A Larger Dividend Than Last Year

The board of United Internet AG (ETR:UTDI) has announced that it will be increasing its dividend by 280% on the 20th of May to €1.90, up from last year's comparable payment of €0.50. Based on this payment, the dividend yield for the company will be 2.4%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that United Internet's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

United Internet's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate United Internet's Could Struggle to Maintain Dividend Payments In The Future

United Internet's Future Dividends May Potentially Be At Risk

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Despite not generating a profit, United Internet is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

The next 12 months is set to see EPS grow by 190.0%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Check out our latest analysis for United Internet

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 annual payment during the last 10 years was €0.40 in 2015, and the most recent fiscal year payment was €0.50. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though United Internet's EPS has declined at around 17% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.

We're Not Big Fans Of United Internet's Dividend

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for United Internet (of which 1 makes us a bit uncomfortable!) you should know about. 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.