Deutsche Bank poised for dividend boost after Postbank settlement: Time to buy?

Deutsche Bank (NYSE: DB) has made significant progress in settling its longstanding dispute regarding the Postbank acquisition.

The progress has sparked optimism among the shareholders as the company can now not only put the issue behind it but also free up the money that was reserved for settling the lawsuit.

The lawsuit has been a significant legal overhang that has weighed on the company’s financial performance and dividend prospects.

However, it has now reached agreements with nearly 60% of the plaintiffs, making further processes easier for the company.

How will it help Deutsche Bank’s Q3?

The bank had reserved $1.3 billion for the settlement of these lawsuits.

However, the bank estimates that only about 45% of the total provisions will be needed to cover the agreements reached with plaintiffs.

The remaining amount will be released, which should help the company post better results for Q3.

Historically, the bank has been conservative in its dividend policy.

The availability of cash in this quarter, however, has made shareholders hopeful of a better payout.

The exact timing and date of a potential payout will depend on various factors.

The company will have to ensure that it won’t fall into further trouble after releasing the amount it had withheld for the lawsuits.

There is also the matter of the current economic environment, where the company may have better uses of the cash than simply paying out to shareholders.

The financial performance of the bank in the ongoing quarter will also be a factor, though it is expected that it will post a healthy performance.

The current financial trajectory certainly points to a favorable environment for a dividend payout.

Deutsche Bank valuation

Deutsche Bank at its current valuation is considered a deep-value play.

One reason for this is its historic tendency to be amid controversies. An uncertain global economic environment also doesn’t help.

Considering the potential resolution of the lawsuit, Deutsche Bank will be able to free up some resources to focus on the company. This should cause a mini re-rating and an improved valuation to the upside.

According to analysts, the consensus rating on the stock is Moderate Buy, which reflects a generally positive outlook for the stock. After today’s news, investors should keep a close eye on any analyst upgrades that might trigger a bull rally in the stock.

The average analyst estimate for the stock is just above $19, which is a further 17% upside from the current levels.

Should investors buy the stock for its payout?

As mentioned above, even though the ability to pay the dividend is there, the willingness to pay the dividend is something that cannot be predicted.

The biggest question mark for dividend hunters will be the management, who will decide the best use of the cash.

If the management decides to use the cash within the business, short-term traders might be disappointed.

Unfortunately, it is not possible to predict board meeting decisions, so investors might be better off staying cautious instead of aggressively buying for a payout.