Is Antevenio, S.A. (EPA:ALANT) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
Antevenio pays a 4.6% dividend yield, and has been paying dividends for the past three years. It's certainly an attractive yield, but readers are likely curious about its staying power. Some simple research can reduce the risk of buying Antevenio for its dividend - read on to learn more.
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Antevenio paid out 93% of its profit as dividends, over the trailing twelve month period. Its payout ratio is quite high, and the dividend is not well covered by earnings. If earnings are growing or the company has a large cash balance, this might be sustainable - still, we think it is a concern.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Antevenio paid out 129% of its free cash flow last year, which we think is concerning if cash flows do not improve. As Antevenio's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
While the above analysis focuses on dividends relative to a company's earnings, we do note Antevenio's strong net cash position, which will let it pay larger dividends for a time, should it choose.
We update our data on Antevenio every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. Its most recent annual dividend was €0.30 per share, effectively flat on its first payment three years ago.
It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. It's good to see Antevenio has been growing its earnings per share at 48% a year over the past five years. Earnings per share have been growing very rapidly, although the company is also paying out virtually all of its profit in dividends. Generally, a company that is growing rapidly while paying out a majority of its earnings, is seeing its debt burden increase. We'd be conscious of any extra risk added by this practice.
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're a bit uncomfortable with Antevenio paying out a high percentage of both its cashflow and earnings. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we'd like. In summary, Antevenio has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.
Now, if you want to look closer, it would be worth checking out our free research on Antevenio management tenure, salary, and performance.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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