Hapag-Lloyd's (ETR:HLAG) Dividend Will Be Reduced To €9.25

Hapag-Lloyd Aktiengesellschaft (ETR:HLAG) is reducing its dividend from last year's comparable payment to €9.25 on the 6th of May. This means that the annual payment is 6.3% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Hapag-Lloyd

Hapag-Lloyd Is Paying Out More Than It Is Earning

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Hapag-Lloyd's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 70.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

Hapag-Lloyd's Dividend Has Lacked Consistency

Hapag-Lloyd has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of €0.15 in 2019 to the most recent total annual payment of €9.25. This means that it has been growing its distributions at 128% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hapag-Lloyd has impressed us by growing EPS at 140% per year over the past five years. Hapag-Lloyd is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Hapag-Lloyd's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Hapag-Lloyd has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Hapag-Lloyd has 4 warning signs (and 1 which doesn't sit too well with us) we think 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.