Dividend paying stocks like Schwälbchen Molkerei Jakob Berz AG (FRA:SMB) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
A 2.1% yield is nothing to get excited about, but investors probably think the long payment history suggests Schwälbchen Molkerei Jakob Berz has some staying power. There are a few simple ways to reduce the risks of buying Schwälbchen Molkerei Jakob Berz for its dividend, and we'll go through these below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, 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. Schwälbchen Molkerei Jakob Berz paid out 33% of its profit as dividends, over the trailing twelve month period. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Plus, there is room to increase the payout ratio over time.
With a strong net cash balance, Schwälbchen Molkerei Jakob Berz investors may not have much to worry about in the near term from a dividend perspective.
Remember, you can always get a snapshot of Schwälbchen Molkerei Jakob Berz's latest financial position, by checking our visualisation of its financial health.
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. Schwälbchen Molkerei Jakob Berz has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past ten-year period, the first annual payment was €0.60 in 2010, compared to €0.80 last year. Dividends per share have grown at approximately 2.9% per year over this time. Schwälbchen Molkerei Jakob Berz's dividend payments have fluctuated, so it hasn't grown 2.9% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Schwälbchen Molkerei Jakob Berz's EPS are effectively flat over the past three years. Flat earnings per share are acceptable for a time, but over the long term, the purchasing power of the company's dividends could be eroded by inflation. A payout ratio below 50% leaves ample room to reinvest in the business, and provides finanical flexibility. Earnings per share growth have grown slowly, which is not great, but if the retained earnings can be reinvested effectively, future growth may be stronger.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Schwälbchen Molkerei Jakob Berz has a low and conservative payout ratio. Second, earnings have been essentially flat, and its history of dividend payments is chequered - having cut its dividend at least once in the past. In summary, we're unenthused by Schwälbchen Molkerei Jakob Berz as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 4 warning signs for Schwälbchen Molkerei Jakob Berz that investors should take into consideration.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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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