Koninklijke DSM (AMS:DSM) Is Increasing Its Dividend To €1.70

Koninklijke DSM N.V.'s (AMS:DSM) dividend will be increasing to €1.70 on 1st of June. Although the dividend is now higher, the yield is only 1.6%, which is below the industry average.

Check out our latest analysis for Koninklijke DSM

Koninklijke DSM's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Koninklijke DSM was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 17.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 52%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Koninklijke DSM Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from €1.40 to €2.50. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Koninklijke DSM has impressed us by growing EPS at 11% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Koninklijke DSM Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 22 analysts we track are forecasting for Koninklijke DSM for free with public analyst estimates for the company. Is Koninklijke DSM not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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