Yahoo Finance Deutsche Telekom (ETR:DTE) Has Announced That It Will Be Increasing Its Dividend To €0.77
Deutsche Telekom AG (ETR:DTE) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of April to €0.77. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.
View our latest analysis for Deutsche Telekom
Deutsche Telekom's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, Deutsche Telekom was paying out 94% of earnings, but a comparatively small 20% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 165.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 36% which would be quite comfortable going to take the dividend forward.
Deutsche Telekom Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was €0.50 in 2014, and the most recent fiscal year payment was €0.77. This means that it has been growing its distributions at 4.4% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth Could Be Constrained
The company's investors will be pleased to have been receiving dividend income for some time. Deutsche Telekom has impressed us by growing EPS at 13% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
Our Thoughts On Deutsche Telekom's Dividend
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. With a reasonable track record and good earnings coverage, the payments look sustainable. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Deutsche Telekom that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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