Read This Before Buying K+S Aktiengesellschaft (FRA:SDF) For Its Dividend
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Historically, K+S Aktiengesellschaft (FRA:SDF) has paid a dividend to shareholders. It currently yields 2.3%. Should it have a place in your portfolio? Let’s take a look at K+S in more detail.
Check out our latest analysis for K+S
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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 dividend per share risen in the past couple of years?
Does earnings amply cover its dividend payments?
Will it be able to continue to payout at the current rate in the future?
How does K+S fare?
The company currently pays out more than double of its earnings as a dividend, according to its trailing trailing twelve-month data, which suggests that the dividend is not well-covered by earnings by any means. In the near future, analysts are predicting a more sensible payout ratio of 38% which, assuming the share price stays the same, leads to a dividend yield of 3.7%. In addition to this, EPS should increase to €1.08, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from K+S fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, K+S generates a yield of 2.3%, which is on the low-side for Chemicals stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in K+S for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. 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. Below, I’ve compiled three relevant aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for SDF’s future growth? Take a look at our free research report of analyst consensus for SDF’s outlook.
Valuation: What is SDF 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 SDF is currently mispriced by the market.
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.
