Back in September, many dividend investors were enticed by the 4%-plus yield being distributed by Siemens (OTC:SIEGY). But with the stock up more than 23% since then -- and the yield down proportionally to about 3.5% -- is it still a solid option for income-seeking investors? I happen to think the answer is still "yes."

Siemens earnings were better than expected

Going into the fourth quarter, investors were right to think of Munich-based Siemens as a high-yield stock, but one that came with the implicit understanding that earnings headwinds were gathering. After all, during the third-quarter earnings release in August, management had painted a dismal picture.

Coins in the shape of a rising bar chart.

Image source: Getty Images.

For example, the Q3 earnings release referred to the company's short-cycle businesses having "significantly deteriorated in the second half of the fiscal year," which would make it more challenging to hit its revenue growth targets, and meant that earnings margins were likely to come in near the bottom of the guidance range. As such, there were fears that Siemens' full-year EPS would come in at the low end of the 6.3 euro to 7 euro guidance range.

Fast-forward to the consensus-busting fourth-quarter earnings report it delivered on Nov. 7, when Siemens beat expectations on many fronts. For example, the revenue growth target was achieved. Full-year adjusted earnings before interest, tax, and amortization (EBITA) margin of 11.5% came in at the middle of the 11% to 12% forecast range. Finally, earnings of 6.93 euros per share (excluding severance charges) were at the high end of the guidance range.

Meanwhile, with free cash flow (FCF) generation of $5.87 billion, the dividend payment of some $3 billion is almost double-covered by FCF -- in fact, management plans to increase the annual dividend payment by 0.10 euros to 3.90 euros.

All told, the Q4 numbers were relatively better than management's guidance anticipated a few months ago. Moreover, the dividend looks sustainable and well covered.

It's still an uncertain outlook

That said, management acknowledged that the global economy was subject to " risks particularly related to geopolitical and geoeconomic uncertainties," and guidance for 2020 calls for no more than "moderate growth in comparable revenue."

But here's the thing. We all know 2020 is going to be a slow year for economic growth, but Siemens' guidance calls for decent earnings growth of 4% at the midpoint. Furthermore, there's evidence that it's most cyclical business -- industrial automation within its digital industries segment -- could turn positive at some point. Along with General Electric (NYSE:GE), Siemens is seeing signs of stabilization in the gas power market -- a market that's been in decline for half a decade. 

In fact, Siemens guidance by segment and the guidance of Siemens Healthineers and Siemens Gamesa (Siemens owns majority stakes in both businesses) calls for revenue growth in all but the digital industries segment.

Business unit

2019 Adjusted EBITA

2019 Adjusted EBITA Margin

2020 Comparable Revenue Growth Guidance

2020 Adjusted EBITA margin guidance

Digital industries

2.880 billion euros

18.6%

Flat

17%-18%

Smart infrastructure

1.500 billion euros

10.9%

Moderate

10%-11%

Gas and power

679 million euros

4%

Moderate

2%-5%

Mobility

983 million euros

10.9%

Mid-single digit

10%-11%

Siemens Healthineers*

2.461 billion euros

16.5%

5%-6%

17%-18%

Siemens Gamesa Renewable Energy**

482 million euros

5.3%

0%-3.6%

5.5%-7%

Data source: Siemens presentations. *Publicly listed company of which Siemens owns 85% of shares. **Publicly listed company of which Siemens owns 59% of shares. EBITA = earnings before interest, tax, and amortization.

Gas and power, and digital industries

All in all, those are not bad results in a slowing economy, and management's commentary on the earnings call gave hope for improvements in 2021. For example, CFO Ralf Thomas said that the gas turbine "market is expected to stabilize around 80 units next year" -- a view that aligns well with GE CEO Larry Culp's assertion that his company's power business is showing signs of stabilization. 

In addition, while Thomas expects "three to four quarters [of] ongoing cyclical weakness and structural challenges in automotive and machine building" to negatively impact the digital industries segment, and doesn't expect a "trough in our most relevant short-cycle verticals before mid-calendar year 2020." Other digital-industries end-markets (pharma, food and beverage, aerospace and defense, electronics and semiconductors) are expected to grow in fiscal 2020.

Siemens also expects its industrial software revenue (around 23% of total digital-industries revenue) to grow at a similar rate to the 8% achieved in 2019 -- as investors in automation and robotics stocks already know industrial software is a key driver of the so-called "fourth industrial revolution" involving web-enabled devices, the Internet of Things and smart automated processes.

Is Siemens still a buy?

All told, Siemens' guidance isn't stellar, but it was more than could be expected in the circumstances, and the dividend yield looks well covered, with potential for growth. With a current yield of around 3.5%, the stock remains very attractive for income seekers.