Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, Deutsche Telekom AG (FRA:DTE) has paid a dividend to shareholders. It currently yields 4.8%. Does Deutsche Telekom tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Deutsche Telekom pass our checks?
The current trailing twelve-month payout ratio for the stock is 78%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 66% which, assuming the share price stays the same, leads to a dividend yield of around 5.3%. However, EPS should increase to €0.93, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from Deutsche Telekom have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, Deutsche Telekom produces a yield of 4.8%, which is on the low-side for Telecom stocks.
Considering the dividend attributes we analyzed above, Deutsche Telekom is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for DTE’s future growth? Take a look at our free research report of analyst consensus for DTE’s outlook.
- Valuation: What is DTE worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether DTE is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.