Could IFA Hotel & Touristik Aktiengesellschaft (FRA:IFA) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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 IFA Hotel & Touristik's dividend prospects, even though it has been paying dividends for the last six years and offers a 1.9% yield. While the yield may not look too great, the relatively long payment history is interesting. Some simple research can reduce the risk of buying IFA Hotel & Touristik for its dividend - read on to learn more.
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Payout ratios
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. Looking at the data, we can see that 8.7% of IFA Hotel & Touristik's profits were paid out as dividends in the last 12 months. We'd say its dividends are thoroughly covered by earnings.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Last year, IFA Hotel & Touristik paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.
With a strong net cash balance, IFA Hotel & Touristik investors may not have much to worry about in the near term from a dividend perspective.
Consider getting our latest analysis on IFA Hotel & Touristik's financial position here.
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. IFA Hotel & Touristik has been paying a dividend for the past six years. It's good to see that IFA Hotel & Touristik 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 six-year period, the first annual payment was €0.20 in 2013, compared to €0.12 last year. The dividend has shrunk at around 8.2% a year during that period. IFA Hotel & Touristik's dividend has been cut sharply at least once, so it hasn't fallen by 8.2% every year, but this is a decent approximation of the long term change.