CropEnergies AG (ETR: CE2) will increase its dividend on July 16 to € 0.35. Although the dividend is now higher, the return is only 3.2%, which is lower than the industry average.

See our latest analysis for CropEnergies

CropEnergies revenues easily cover distributions

If predictable over a long period of time, even low dividend yields can be attractive. However, CropEnergies’ profits easily cover the dividend. This means that most of its profits are kept to grow the business.

EPS is expected to decline 19.6% over the next 12 months. Assuming the dividend continues according to recent trends, we think the payout ratio could be 50%, which we are quite comfortable with and think is feasible on an earnings basis.

Dividend volatility

The company has a long dividend track record, but it doesn’t look great with cuts in the past. The dividend went from € 0.05 in 2011 to the last annual payment of € 0.35. This works out to a compound annual growth rate (CAGR) of around 21% per year during that time. CropEnergies has increased its distributions at a rapid pace despite the dividend reduction at least once in the past. Companies that cut again often cut again, so we would be careful not to buy this stock just for dividend income.

The dividend is expected to increase

With a relatively volatile dividend, it is even more important to see if earnings per share increase. It is encouraging to see that CropEnergies has increased its earnings per share by 15% per year over the past five years. A low payout rate and decent growth suggest the company is reinvesting well and also has plenty of room to increase the dividend over time.

CropEnergies looks like a big dividend

Overall, we think it could be an attractive income stock, and it’s only getting better by paying a higher dividend this year. Profits easily cover the company’s distributions, and the business generates a lot of cash. If earnings go down over the next 12 months, the dividend could be shaken up a bit, but we don’t think that should cause too much of a problem in the long run. Overall, this checks many of the boxes we look for when choosing an income stock.

Market movements attest to the high value of a coherent dividend policy compared to a more unpredictable policy. At the same time, there are other factors that our readers should be aware of before injecting capital into a stock. Concrete example: we have spotted 2 warning signs for CropEnergies (of which 1 is a bit rude!) you should know. We have also set up a list of global stocks with a solid dividend.

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