Hapag-Lloyd Aktiengesellschaft (ETR:HLAG) has announced that on 1st of January, 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 6.1% of the current stock price, which is lower than what the rest of the industry is paying.

Hapag-Lloyd's Projections Indicate Future Payments May Be Unsustainable

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Hapag-Lloyd's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to fall by 59.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 199%, which could put the dividend in jeopardy if the company's earnings don't improve.

See our latest analysis for Hapag-Lloyd

Hapag-Lloyd's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of €0.15 in 2019 to the most recent total annual payment of €8.20. This means that it has been growing its distributions at 95% per annum 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 see if earnings per share is growing. It's encouraging to see that Hapag-Lloyd has been growing its earnings per share at 46% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Hapag-Lloyd could prove to be a strong dividend payer.

We Really Like Hapag-Lloyd's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Hapag-Lloyd has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Hapag-Lloyd you should be aware of, and 1 of them doesn't sit too well with us. Is Hapag-Lloyd not quite the opportunity you were looking for? Why not check out our selection of top 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.