Deutsche Telekom AG (ETR:DTE) Looks Like A Good Stock, And It’s Going Ex-Dividend Soon

Deutsche Telekom AG (ETR:DTE) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Deutsche Telekom’s shares before the 2nd of April to receive the dividend, which will be paid on the 8th of April.

The company’s upcoming dividend is €1.00 a share, following on from the last 12 months, when the company distributed a total of €1.00 per share to shareholders. Based on the last year’s worth of payments, Deutsche Telekom stock has a trailing yield of around 3.2% on the current share price of €31.69. If you buy this business for its dividend, you should have an idea of whether Deutsche Telekom’s dividend is reliable and sustainable. So we need to investigate whether Deutsche Telekom can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Deutsche Telekom is paying out an acceptable 51% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.

It’s positive to see that Deutsche Telekom’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Deutsche Telekom

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we’re glad to see Deutsche Telekom’s earnings per share have risen 19% per annum over the last five years. Deutsche Telekom has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Deutsche Telekom has increased its dividend at approximately 6.2% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Is Deutsche Telekom an attractive dividend stock, or better left on the shelf? Deutsche Telekom’s growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It’s a promising combination that should mark this company worthy of closer attention.

So while Deutsche Telekom looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Deutsche Telekom and you should be aware of this before buying any shares.

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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.