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Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Arbonia AG (VTX:ARBN) has paid a dividend to shareholders. It currently yields 1.9%. Does Arbonia tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
See our latest analysis for Arbonia
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is their annual yield among the top 25% of dividend payers?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has dividend per share risen in the past couple of years?
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Is its earnings sufficient to payout dividend at the current rate?
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Will the company be able to keep paying dividend based on the future earnings growth?
How does Arbonia fare?
The company currently pays out 35% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 37% which, assuming the share price stays the same, leads to a dividend yield of around 3.0%. Moreover, EPS is forecasted to fall to CHF0.53 in the upcoming year.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. ARBN investors will be well aware the dividend payments are lower today than they were 10 years ago, although the payments have at least been steady. Though this may not be a serious red flag, strong dividend stocks should always strive to increase its payout over time.
In terms of its peers, Arbonia has a yield of 1.9%, which is on the low-side for Building stocks.
Next Steps:
Taking all the above into account, Arbonia is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should further examine: