The current market volatility affects the dividend yield of many a stock. To calculate the dividend yield, one relies on the dividend paid per share, as well as the current price level of the stock in question. So the more a stock falls, the higher the expected dividend yield will ultimately be.
Due to inflation and the generally difficult economic situation, shares from the real estate sector in particular have fallen sharply since the beginning of the year. Aroundtown (WKN: A2DW8Z)'s share price was also hit very hard.
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In the meantime, one share certificate of the company is quoted below two euros. As a result, the prospective dividend yield is now over 11%! Does investing in the stock now offer long-term investors an opportunity?
A dividend yield of 11.73 % is very attractive
Based on a dividend of 0.23 euros per share paid for fiscal 2021 and the current share price level of 1.96 euros (as of 21.10.2022), this results in a dividend yield of 11.73%. This is a comparatively high value that makes the hearts of income investors beat faster.
Aroundtown doesn't have a very long history of paying dividends, but it has always paid out to shareholders over the last seven years. Not even in corona's 2020 year did the company eliminate the payout altogether. Instead, it made a reduction of 0.02 euros per share.
Dividend seems to be secured
With such a high dividend yield, there is always the question of how sustainable the payout is. Do the company's finances even give it such a high dividend?
My opinion is: yes, they do. Funds from operations per share rose 13% year-on-year to €0.17 in the first half of the year. According to the company's forecast, a value of at least 0.31 euros per share should be achieved in the full year. This means that the payment of the dividend in the same amount would be sustainable in any case.
In addition, the company is sitting on cash and cash equivalents of 2.2 billion. Euro. There is also the possibility of a further 1 billion. Euro through a credit line that has not yet been used.
All in all, the dividend yield seems to be largely secure in my eyes at the moment, despite the high level.
A high dividend yield, but ..
A dividend yield above 11% is very tempting. But with the highest possible returns also comes higher risk. Aroundtown is doing well financially, but its stock price has plummeted for a reason.
Rampant inflation is inhibiting demand for loans, which have driven the real estate industry in recent years. In addition, concerns about a recession certainly play a role in the valuation of the share price.
Even though aroundtown has a high dividend yield right now, a cut in the dividend could reduce the yield at any time. Here's what investors should keep in mind.
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Caio reimertshofer owns shares in aroundtown. The motley fool recommends aroundtown.