The (ETR:BST) The dividend will increase to €0.30 compared to the payment in the same period last year on September 16. Despite this increase, the dividend yield of 3.4% is only a modest increase in shareholder returns.

Check out our latest analysis for Bastei Lübbe

Bastei Lübbe: Dividend well covered by earnings

A higher yield would be nice, but we should also consider whether higher dividend payments would be sustainable. Before this announcement, Bastei Lübbe’s dividend was only 40% of profits, but it paid out 173% of free cash flow. While the company may currently be more focused on paying out money to shareholders rather than growing the business, we believe such a high payout ratio could cut the dividend if the business hits difficulties.

Earnings per share are expected to decline 7.8% over the next 12 months. If the dividend follows recent trends, we believe the payout ratio could be as high as 44%, which we think is quite comfortable given that most of the company’s earnings are left for future growth.

Dividend volatility

Although the company has a long history of paying dividends, it has cut them at least once in the last 10 years. The dividend has grown from an annual total of €0.28 in 2014 to the most recent annual total payout of €0.30. Dividend payments have grown by less than 1% per year over that period. It’s encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would wipe out most of the growth anyway, making this less attractive as an income investment.

The dividend is likely to increase

Given that the dividend has been cut in the past, we need to check whether earnings are growing and whether this could lead to higher dividends in the future. It is encouraging to see that Bastei Lübbe has been able to grow earnings per share by 29% per year over the past five years. The company’s earnings per share have grown strongly in recent years and there is a good balance between reinvestment and dividend payments to shareholders. Therefore, we believe Bastei Lübbe could prove to be a strong dividend payer.

In summary

Overall, we always appreciate dividend increases, but we don’t think Bastei Lübbe will be a good dividend stock. Given the lack of cash flows, it’s hard to imagine the company being able to maintain a dividend payment. We don’t think Bastei Lübbe is a good stock for your portfolio if your focus is on dividend payments.

Companies with a stable dividend policy are likely to attract more interest from investors than those with a more inconsistent approach. However, despite the importance of dividend payments, they are not the only factors our readers should consider when evaluating a company. Bastei Lübbe has 2 warning signs (and 1 that is a bit unpleasant) that we think you should know about. Looking for more high-yield dividend ideas? Try our Collection of strong dividend payers.

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