Is Chelyabinsk Forge-and-Press Plant, Public Joint Stock Company (MCX:CHKZ) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
Investors might not know much about Chelyabinsk Forge-and-Press Plant's dividend prospects, even though it has been paying dividends for the last seven years and offers a 2.2% yield. A 2.2% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can reduce the risk of holding Chelyabinsk Forge-and-Press Plant for its dividend, and we'll focus on the most important aspects below.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Chelyabinsk Forge-and-Press Plant paid out 19% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.
Remember, you can always get a snapshot of Chelyabinsk Forge-and-Press Plant's latest financial position, by checking our visualisation of its financial health.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Chelyabinsk Forge-and-Press Plant has been paying a dividend for the past seven years. It's good to see that Chelyabinsk Forge-and-Press Plant has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past seven-year period, the first annual payment was ₽80.00 in 2013, compared to ₽100.00 last year. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. The dividends haven't grown at precisely 3.2% every year, but this is a useful way to average out the historical rate of growth.
Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Chelyabinsk Forge-and-Press Plant has grown its earnings per share at 16% per annum over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
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. Firstly, we like that Chelyabinsk Forge-and-Press Plant has a low and conservative payout ratio. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Chelyabinsk Forge-and-Press Plant has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.
See if management have their own wealth at stake, by checking insider shareholdings in Chelyabinsk Forge-and-Press Plant stock.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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