Hapag-Lloyd Aktiengesellschaft (ETR:HLAG) has announced that on 6th of May, it will be paying a dividend of€8.20, which a reduction from last year's comparable dividend. This means that the annual payment is 6.8% of the current stock price, which is lower than what the rest of the industry is paying.

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Estimates Indicate Hapag-Lloyd's Could Struggle to Maintain Dividend Payments In The Future

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by Hapag-Lloyd's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to fall by 71.8%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Hapag-Lloyd

Hapag-Lloyd's Dividend Has Lacked Consistency

It's comforting to see that Hapag-Lloyd has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the annual payment back then was €0.15, compared to the most recent full-year payment of €8.20. This works out to be a compound annual growth rate (CAGR) of approximately 95% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. Hapag-Lloyd has impressed us by growing EPS at 46% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

We Really Like Hapag-Lloyd's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Hapag-Lloyd does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Hapag-Lloyd (of which 1 is significant!) you should know about. 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.