Hensoldt AG (ETR:5UH) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to €0.40. Even though the dividend went up, the yield is still quite low at only 0.9%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hensoldt's stock price has increased by 70% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Hensoldt

Hensoldt's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Hensoldt's dividend made up quite a large proportion of earnings but only 30% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 23% which is fairly sustainable.

Hensoldt Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the dividend has gone from €0.13 total annually to €0.40. This means that it has been growing its distributions at 45% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Hensoldt Might Find It Hard To Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Hensoldt has grown earnings per share at 65% per year over the past three years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Hensoldt hasn't been doing.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Hensoldt will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Hensoldt 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Hensoldt that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.