Could Standard Chartered PLC (LON:STAN) 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. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
A 2.5% yield is nothing to get excited about, but investors probably think the long payment history suggests Standard Chartered has some staying power. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
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, Standard Chartered paid out 112% 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.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Standard Chartered has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of 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 US$0.62 in 2009, compared to US$0.21 last year. The dividend has fallen 66% over that period.
When a company’s per-share dividend falls we question if this reflects poorly on either the business or management. Either way, we find it hard to get excited about a company with a declining dividend.
Dividend Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it’s even more important to see if EPS are growing. Over the past five years, it looks as though Standard Chartered’s EPS have declined at around 35% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Standard Chartered’s earnings per share, which support the dividend, have been anything but stable.
To summarise, shareholders should always check that Standard Chartered’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Standard Chartered is paying out a larger percentage of its profit than we’re comfortable with. Second, earnings per share have been essentially flat, and its history of dividend payments is chequered – having cut its dividend at least once in the past. With any dividend stock, we look for a sustainable payout ratio, steady dividends, and growing earnings. Standard Chartered has a few too many issues for us to get interested.
Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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