Dividend paying stocks like Catering International & Services Société Anonyme (EPA:CTRG) 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 the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
While Catering International & Services Société Anonyme's 1.0% dividend yield is not the highest, we think its lengthy payment history is quite interesting. The company also returned around 1.1% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.
Click the interactive chart for our full dividend analysis
Payout ratios
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. 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. Catering International & Services Société Anonyme paid out 20% of its profit as dividends, over the trailing twelve month period. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Catering International & Services Société Anonyme's cash payout ratio last year was 20%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
While the above analysis focuses on dividends relative to a company's earnings, we do note Catering International & Services Société Anonyme's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Remember, you can always get a snapshot of Catering International & Services Société Anonyme's latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Catering International & Services Société Anonyme's dividend payments. The dividend has been cut by more than 20% on at least one occasion historically. During the past ten-year period, the first annual payment was €0.25 in 2009, compared to €0.12 last year. This works out to be a decline of approximately 7.1% per year over that time. Catering International & Services Société Anonyme's dividend has been cut sharply at least once, so it hasn't fallen by 7.1% every year, but this is a decent approximation of the long term change.