Here's What You Should Know About Public Joint Stock Company Best Efforts Bank's (MCX:ALBK) 6.6% Dividend Yield

Simply Wall St

Wed, Jul 17, 2019, 9:50 PM

Is Public Joint Stock Company Best Efforts Bank (MCX:ALBK) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With a six-year payment history and a 6.6% yield, many investors probably find Best Efforts Bank intriguing. It sure looks interesting on these metrics - but there's always more to the story . There are a few simple ways to reduce the risks of buying Best Efforts Bank for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Best Efforts Bank!

MISX:ALBK Historical Dividend Yield, July 18th 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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, Best Efforts Bank paid out 160% of its profit as dividends. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We update our data on Best Efforts Bank every 24 hours, so you can always get our latest analysis of its financial health, here.

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. Looking at the data, we can see that Best Efforts Bank has been paying a dividend for the past six years. It's good to see that Best Efforts Bank 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 RUруб0.27 in 2013, compared to RUруб4.60 last year. This works out to be a compound annual growth rate (CAGR) of approximately 60% a year over that time. Best Efforts Bank's dividend payments have fluctuated, so it hasn't grown 60% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger 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 Best Efforts Bank has grown its earnings per share at 18% per annum over the past five years. With a payout ratio of 160%, Best Efforts Bank is paying out substantially more than it earned in dividends. This is a risky practice.

Conclusion

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. We're a bit uncomfortable with its high payout ratio. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. In summary, we're unenthused by Best Efforts Bank as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

Are management backing themselves to deliver performance? Check their shareholdings in Best Efforts Bank in our latest insider ownership analysis.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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