Rieter Holding AG (VTX:RIEN) will increase its dividend from last year's comparable payment on the 23rd of April to CHF3.00. Based on this payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.

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 Rieter Holding's stock price has increased by 45% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Rieter Holding

Rieter Holding's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Rieter Holding's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 16.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from CHF3.50 total annually to CHF3.00. The dividend has shrunk at around 1.5% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Rieter Holding has seen EPS rising for the last five years, at 18% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Rieter Holding Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Rieter Holding is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. Taking this all into consideration, this looks like it could be a good dividend opportunity.