The board of Hensoldt AG (ETR:HAG) has announced that it will be paying its dividend of €0.50 on the 30th of May, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

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 61% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Our free stock report includes 2 warning signs investors should be aware of before investing in Hensoldt. Read for free now.

Hensoldt's Future Dividend Projections Appear Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last dividend was quite easily covered by Hensoldt's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 182.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

See our latest analysis for Hensoldt

Hensoldt Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2021, the annual payment back then was €0.13, compared to the most recent full-year payment of €0.50. This works out to be a compound annual growth rate (CAGR) of approximately 40% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Hensoldt has been growing its earnings per share at 66% a year over the past five years. Hensoldt is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Hensoldt's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Hensoldt has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Hensoldt not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.