Should You Buy Malteries Franco-Belges Société Anonyme (EPA:MALT) For Its Dividend?

Simply Wall St

Wed, Jun 12, 2019, 6:06 AM

Dividend paying stocks like Malteries Franco-Belges Société Anonyme (EPA:MALT) 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. 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.

Investors might not know much about Malteries Franco-Belges Société Anonyme's dividend prospects, even though it has been paying dividends for the last nine years and offers a 1.0% yield. A 1.0% yield is not inspiring, but the longer payment history has some appeal. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

ENXTPA:MALT Historical Dividend Yield, June 12th 2019

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Malteries Franco-Belges Société Anonyme paid out 15% of its profit as dividends. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Last year, Malteries Franco-Belges Société Anonyme paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable. It's positive to see that Malteries Franco-Belges Société Anonyme's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Remember, you can always get a snapshot of Malteries Franco-Belges Société Anonyme's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

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 first recorded dividend for Malteries Franco-Belges Société Anonyme, in the last decade, was nine years ago. It's good to see that Malteries Franco-Belges Société Anonyme 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 nine-year period, the first annual payment was €9.60 in 2010, compared to €5.89 last year. This works out to be a decline of approximately 5.3% per year over that time. Malteries Franco-Belges Société Anonyme's dividend hasn't shrunk linearly at 5.3% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Malteries Franco-Belges Société Anonyme for its dividend, given that payments have shrunk over the past nine years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Malteries Franco-Belges Société Anonyme has grown its earnings per share at 7.4% per annum over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Malteries Franco-Belges Société Anonyme's prospects of growing its dividend payments in the future.

Conclusion

To summarise, shareholders should always check that Malteries Franco-Belges Société Anonyme's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Malteries Franco-Belges Société Anonyme has a low payout ratio, which we like, although it paid out virtually all of its generated cash. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. In sum, we find it hard to get excited about Malteries Franco-Belges Société Anonyme from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

See if management have their own wealth at stake, by checking insider shareholdings in Malteries Franco-Belges Société Anonyme stock.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.

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