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Does SAP SE (FRA:SAP) Have A Place In Your Portfolio?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, SAP SE (FRA:SAP) has paid a dividend to shareholders. It currently yields 1.6%. Does SAP tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

See our latest analysis for SAP

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

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

  • Does it consistently pay out dividends without missing a payment of significantly cutting payout?

  • Has dividend per share amount increased over the past?

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

  • Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

DB:SAP Historical Dividend Yield December 10th 18
DB:SAP Historical Dividend Yield December 10th 18

How does SAP fare?

SAP has a trailing twelve-month payout ratio of 39%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 33%, leading to a dividend yield of 1.8%. However, EPS should increase to €3.78, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of SAP it has increased its DPS from €0.50 to €1.4 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes SAP a true dividend rockstar.

Compared to its peers, SAP generates a yield of 1.6%, which is high for Software stocks but still below the low risk savings rate.

Next Steps:

With these dividend metrics in mind, I definitely rank SAP as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three relevant aspects you should further examine:

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

  2. Valuation: What is SAP 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 SAP 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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