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HeidelbergCement AG (ETR:HEI) Passed Our Checks, And It's About To Pay A €2.20 Dividend

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Simply Wall St
·4 min read
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HeidelbergCement AG (ETR:HEI) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 8th of May will not receive the dividend, which will be paid on the 12th of May.

HeidelbergCement's upcoming dividend is €2.20 a share, following on from the last 12 months, when the company distributed a total of €2.20 per share to shareholders. Based on the last year's worth of payments, HeidelbergCement has a trailing yield of 5.1% on the current stock price of €43.38. If you buy this business for its dividend, you should have an idea of whether HeidelbergCement's dividend is reliable and sustainable. As a result, readers should always check whether HeidelbergCement has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for HeidelbergCement

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 HeidelbergCement's payout ratio is modest, at just 39% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that HeidelbergCement'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.

XTRA:HEI Historical Dividend Yield May 4th 2020
XTRA:HEI Historical Dividend Yield May 4th 2020

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see HeidelbergCement earnings per share are up 9.9% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, HeidelbergCement has lifted its dividend by approximately 34% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is HeidelbergCement worth buying for its dividend? Earnings per share growth has been growing somewhat, and HeidelbergCement is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and HeidelbergCement is halfway there. HeidelbergCement looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 2 warning signs for HeidelbergCement that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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. Thank you for reading.