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Should You Buy Deutsche Pfandbriefbank AG (ETR:PBB) For Its Dividend?

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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years Deutsche Pfandbriefbank AG (ETR:PBB) has paid a dividend to shareholders. Today it yields 9.4%. Let's dig deeper into whether Deutsche Pfandbriefbank should have a place in your portfolio.

View our latest analysis for Deutsche Pfandbriefbank

5 checks you should do on a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

  • Does it pay an annual yield higher than 75% of dividend payers?

  • Has it paid dividend every year without dramatically reducing payout in the past?

  • Has it increased its dividend per share amount over the past?

  • Can it afford to pay the current rate of dividends from its earnings?

  • Will the company be able to keep paying dividend based on the future earnings growth?

XTRA:PBB Historical Dividend Yield, March 27th 2019
XTRA:PBB Historical Dividend Yield, March 27th 2019

How does Deutsche Pfandbriefbank fare?

The company currently pays out 72% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect PBB's payout to remain around the same level at 77% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 8.0%. Furthermore, EPS is forecasted to fall to €1.14 in the upcoming year.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Deutsche Pfandbriefbank as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, Deutsche Pfandbriefbank produces a yield of 9.4%, which is high for Mortgage stocks.

Next Steps:

With this in mind, I definitely rank Deutsche Pfandbriefbank as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. I've put together three essential factors you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for PBB’s future growth? Take a look at our free research report of analyst consensus for PBB’s outlook.

  2. Valuation: What is PBB 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 PBB is currently mispriced by the market.

  3. 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 editorial-team@simplywallst.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.