Is EnviTec Biogas AG’s (ETR:ETG) 8.1% Dividend Worth Your Time? – Simply Wall St News

Dividend paying stocks like EnviTec Biogas AG (ETR:ETG) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments. With EnviTec Biogas yielding 8.1% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We’d guess that plenty of investors have purchased it for the income. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable. Explore this interactive chart for our latest analysis on EnviTec Biogas! XTRA:ETG Historical Dividend Yield, November 22nd 2019Payout ratios Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. In the last year, EnviTec Biogas paid out 213% of its profit as dividends. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern. Dividend Volatility One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. For the purpose of this article, we only scrutinise the last decade of EnviTec Biogas’s dividend payments. The dividend has been cut by more than 20% on at least one occasion historically. During the past ten-year period, the first annual payment was €0.30 in 2009, compared to €1.00 last year. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. EnviTec Biogas’s dividend payments have fluctuated, so it hasn’t grown 13% every year, but the CAGR is a useful rule of thumb for approximating the historical growth. EnviTec Biogas has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, but it might be worth considering if the business has turned a corner. Dividend Growth Potential With a relatively unstable dividend, it’s even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there’s a good chance of bigger dividends in future? Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it’s great to see EnviTec Biogas has grown its earnings per share at 85% per annum over the past five years. Earnings per share have been growing very rapidly, although the company is also paying out virtually all of its profit in dividends. While EPS could grow fast enough to make the dividend sustainable, in this type of situation, we’d want to pay extra attention to any fragilities in the company’s balance sheet. Conclusion Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. EnviTec Biogas is paying out a larger percentage of its profit than we’re comfortable with. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than EnviTec Biogas out there. Are management backing themselves to deliver performance? Check their shareholdings in EnviTec Biogas in our latest insider ownership analysis. Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%. 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.These great dividend stocks are beating your savings account

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