EUWAX's 7.58% Dividend: A Golden Opportunity or a Leverage Landmine?

Mad Money viewers, today we're diving into EUWAX Aktiengesellschaft (FRA:EUX), a company offering a 7.58% dividend yield—a figure that's sure to grab the attention of income-seeking investors. But here's the catch: beneath that shiny yield lies a balance sheet with growing debt and cash flow concerns. Let's break down whether this is a golden ticket or a risky gamble.

The Dividend Temptation: 7.58% in Your Pocket

EUWAX's dividend yield has surged to 7.58% as of Q1 2025, making it one of the highest in its sector. To put this in perspective, the payout ratio—dividends as a percentage of net income—is a manageable 30.07%. That means the company isn't overextending itself to fund these payouts, at least on paper. Historically, the dividend has been steady, with recent upgrades to the yield suggesting management's confidence.

But here's the question: Can this dividend last? Let's dig deeper.

The Debt Dragon: Rising Leverage and Cash Flow Concerns

While the dividend looks sustainable today, EUWAX's debt-to-equity ratio has jumped from 0.2% to 6.2% over the past five years. That's a red flag. Even more concerning is its operating cash flow covering just 4.7% of total debt—a shockingly low figure. This suggests the company is relying heavily on borrowing to fund operations, which could backfire if interest rates rise or revenues stumble.

The balance sheet isn't entirely weak: short-term liquidity is strong, with short-term assets of €81.7M outweighing liabilities. But the long-term debt picture is murky.

Earnings Yield: A Thorn in the Thigh

The earnings yield—the inverse of the P/E ratio—is only 3.89%, far below the dividend yield. This is a warning sign. If earnings can't grow to match the dividend payouts, the payout ratio could balloon, forcing EUWAX to cut its dividend. Investors chasing yield here must ask: Is this income stream built to last?

Stock Performance: A Stock on the Edge

The stock has climbed 16% this year, hitting a 52-week high of €47.00. But it's lagging behind the DAX, which has surged 17.29% YTD. This underperformance hints at investor skepticism about EUWAX's long-term prospects.

The Bottom Line: Proceed with Caution

EUWAX is a classic “high yield, high risk” play. The dividend is tempting, and the payout ratio is reasonable for now. But the debt spiral and paltry cash flow coverage could spell disaster if economic conditions tighten.

Action Plan for Investors:
- Income hunters: Buy EUWAX only if you're willing to accept the risk of a dividend cut. Pair it with safer yields elsewhere.
- Avoid if: You're risk-averse or expect a recession. The debt load could sink this ship.

In conclusion, EUWAX is a high-wire act. The dividend is the lure, but the balance sheet is the tightrope. Proceed with your eyes wide open.

Final Take: A “Hold” for now. Monitor debt levels closely—this yield could turn sour faster than you think.*