EnBW Energie Baden-Württemberg's (ETR:EBK) Shareholders Will Receive A Bigger Dividend Than Last Year

EnBW Energie Baden-Württemberg AG's (ETR:EBK) dividend will be increasing to €1.10 on 10th of May. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

View our latest analysis for EnBW Energie Baden-Württemberg

EnBW Energie Baden-Württemberg's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, EnBW Energie Baden-Württemberg's dividend made up quite a large proportion of earnings but only 5.7% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS could expand by 20.9% if recent trends continue. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 73% which brings it into quite a comfortable range.

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 dividend has gone from €0.85 in 2012 to the most recent annual payment of €1.10. This implies that the company grew its distributions at a yearly rate of about 2.6% over that duration. 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.

EnBW Energie Baden-Württemberg Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. EnBW Energie Baden-Württemberg has seen EPS rising for the last five years, at 21% per annum. However, EnBW Energie Baden-Württemberg isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 4 warning signs for EnBW Energie Baden-Württemberg that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.