Don't Buy DWS Group GmbH & Co. KGaA (ETR:DWS) For Its Next Dividend Without Doing These Checks
It looks like DWS Group GmbH & Co. KGaA (ETR:DWS) is about to go ex-dividend in the next 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase DWS Group GmbH KGaA's shares before the 16th of June in order to be eligible for the dividend, which will be paid on the 20th of June.
The company's upcoming dividend is €2.05 a share, following on from the last 12 months, when the company distributed a total of €2.05 per share to shareholders. Based on the last year's worth of payments, DWS Group GmbH KGaA stock has a trailing yield of around 6.5% on the current share price of €31.58. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether DWS Group GmbH KGaA can afford its dividend, and if the dividend could grow.
Check out our latest analysis for DWS Group GmbH KGaA
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. DWS Group GmbH KGaA paid out 69% of its earnings to investors last year, a normal payout level for most businesses.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that DWS Group GmbH KGaA's earnings are down 2.9% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, DWS Group GmbH KGaA has increased its dividend at approximately 11% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Should investors buy DWS Group GmbH KGaA for the upcoming dividend? We're not overly enthused to see DWS Group GmbH KGaA's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
So if you're still interested in DWS Group GmbH KGaA despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 1 warning sign for DWS Group GmbH KGaA you should know about.
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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