Deutsche Telekom (ETR:DTE) Could Be A Buy For Its Upcoming Dividend
It looks like Deutsche Telekom AG (ETR:DTE) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Deutsche Telekom investors that purchase the stock on or after the 6th of April will not receive the dividend, which will be paid on the 12th of April.
The company's next dividend payment will be €0.70 per share. Last year, in total, the company distributed €0.70 to shareholders. Looking at the last 12 months of distributions, Deutsche Telekom has a trailing yield of approximately 3.1% on its current stock price of €22.35. If you buy this business for its dividend, you should have an idea of whether Deutsche Telekom's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Deutsche Telekom
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Deutsche Telekom's payout ratio is modest, at just 46% of profit. A useful secondary check can be to evaluate whether Deutsche Telekom generated enough free cash flow to afford its dividend. Fortunately, it paid out only 29% of its free cash flow in the past year.
It's positive to see that Deutsche Telekom'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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Deutsche Telekom's earnings per share have been growing at 16% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Deutsche Telekom's dividend payments are broadly unchanged compared to where they were 10 years ago.
To Sum It Up
Is Deutsche Telekom worth buying for its dividend? It's great that Deutsche Telekom is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Deutsche Telekom looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Deutsche Telekom is facing. For example - Deutsche Telekom has 2 warning signs we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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