KWS SAAT SE & Co. KGaA (ETR:KWS) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of December to €0.90. Even though the dividend went up, the yield is still quite low at only 1.7%.

See our latest analysis for KWS SAAT SE KGaA

KWS SAAT SE KGaA's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. KWS SAAT SE KGaA is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 42.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.

KWS SAAT SE KGaA 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 €0.60 in 2013, and the most recent fiscal year payment was €0.90. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 3.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, KWS SAAT SE KGaA has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On KWS SAAT SE KGaA's Dividend

In summary, while it's always good to see the dividend being raised, we don't think KWS SAAT SE KGaA's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for KWS SAAT SE KGaA (1 can't be ignored!) that you should be aware of before investing. Is KWS SAAT SE KGaA not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.