Read This Before Considering Siemens Limited (NSE:SIEMENS) For Its Upcoming ₹7.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Siemens Limited (NSE:SIEMENS) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 27th of January, you won't be eligible to receive this dividend, when it is paid on the 14th of March.

Siemens's next dividend payment will be ₹7.00 per share, on the back of last year when the company paid a total of ₹7.00 to shareholders. Looking at the last 12 months of distributions, Siemens has a trailing yield of approximately 0.4% on its current stock price of ₹1663.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Siemens can afford its dividend, and if the dividend could grow.

View our latest analysis for Siemens

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Siemens paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Siemens generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Siemens's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Siemens's 7.7% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Siemens has lifted its dividend by approximately 3.4% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Siemens? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. All things considered, we are not particularly enthused about Siemens from a dividend perspective.

In light of that, while Siemens has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Siemens that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you decide to trade Siemens, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.