Why Gelsenwasser AG's Dividend Could Be a Mirage: Risks Lurking Beneath the Surface

Gelsenwasser AG (FRA:WWG) has long been a darling of dividend investors, offering a steady payout that, at 4.06% as of June 2025, appears tempting in a low-yield world. But beneath the surface, the company's financials tell a far murkier story—one of stagnant growth, declining revenue, and a payout ratio that could leave investors holding the bag. For those waiting for the dividend alone, the risks of this strategy are mounting.

The High Price of the Dividend: Payout Ratio at 63%

Gelsenwasser's dividend yield has been buoyed by a consistent payout, with an annual dividend of €21.16 per share announced for June 2025. But the cost of this generosity is clear: the company retains just 37% of its profits for reinvestment, with a three-year median payout ratio of 63%. This is significantly higher than industry peers, which often retain more earnings to fuel growth.

A payout ratio this high leaves little room for error. With net income growth averaging just 2.9% annually over five years—far below the industry's 11%—the company is effectively borrowing from its future to pay shareholders today.

Stagnant Earnings and Collapsing Revenue: A Recipe for Trouble

The dividend's sustainability hinges on earnings growth, which Gelsenwasser has utterly failed to deliver. Over the past three years, revenue has plummeted by 38%, dropping from €14.05 billion in 2022 to €3.2 billion in 2024. Even net income, while stable at €126.8 million in 2024, is down from €143.4 million in 2023.

This freefall isn't just a blip. The company's core water utility business faces headwinds: aging infrastructure, regulatory pressures, and competition from diversified rivals. Meanwhile, recent acquisitions—like the 2024 merger with Wasserservice Westfalen Weser—have yet to translate into meaningful top-line growth.

The Shareholder Return Disaster: -60% Over Three Years

Investors have already paid the price. Despite the dividend, the stock has dropped 63% over three years, with total shareholder returns (including dividends) sinking to -60% over the same period. The ex-dividend date on June 5, 2025, offered little solace: shares now trade at €589.71, down sharply from peaks.

The disconnect between the dividend and stock performance is stark. While the yield has risen to 4.06%, it's a reflection of falling share prices, not growing payouts. This is the classic “dividend trap” scenario: a high yield masking deteriorating fundamentals.

Why Growth Investors Should Flee—and Dividend Chasers Should Beware

The risks are twofold:
1. Dividend Cuts Are Imminent: With revenue collapsing and retention rates at rock bottom, Gelsenwasser can't keep paying out 63% of profits forever. A cut would crush the stock further.
2. Better Alternatives Abound: Utilities like Suez (FR0000131673) offer higher yields (5.2%) with stronger growth profiles, while energy stocks like NextEra Energy (NEE) combine high yields (2.1%) with surging renewables growth.

The Bottom Line: A Dividend Isn't Worth a Lost Decade

Gelsenwasser's allure lies in its consistency—but consistency in a sinking ship is small comfort. With no path to revenue recovery, a payout ratio flirting with danger, and peers offering better deals, investors are better off steering clear. The dividend may still pay out this quarter, but waiting for the next one could mean waiting for a crash.

Action to Take: Sell or avoid Gelsenwasser AG (WWG.F). Redirect capital to utilities with growth and yield, like Suez or NextEra. The “free money” of dividends here comes at a price investors can't afford to pay.