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. Although the dividend is now higher, the yield is only 1.7%, which is below the industry average.

View our latest analysis for KWS SAAT SE KGaA

KWS SAAT SE KGaA's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. But before making this announcement, KWS SAAT SE KGaA's earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share is forecast to rise by 36.2% over the next year. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

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. Since 2013, the dividend has gone from €0.60 total annually to €0.90. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

KWS SAAT SE KGaA May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, KWS SAAT SE KGaA has only grown its earnings per share at 5.0% per annum over the past five years. While growth may be thin on the ground, KWS SAAT SE KGaA could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On KWS SAAT SE KGaA's Dividend

Overall, we always like to see the dividend being raised, but we don't think KWS SAAT SE KGaA will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments KWS SAAT SE KGaA has been making. We don't think KWS SAAT SE KGaA is a great stock to add to your portfolio if income is your focus.

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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 3 analysts we track are forecasting for KWS SAAT SE KGaA for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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