Is Banco di Desio e della Brianza S.p.A. (BIT:BDB) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.
With Banco di Desio e della Brianza yielding 3.2% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. That said, the recent jump in the share price will make Banco di Desio e della Brianza’s dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding Banco di Desio e della Brianza for its dividend, and we’ll focus on the most important aspects below.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 24% of Banco di Desio e della Brianza’s profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.
Remember, you can always get a snapshot of Banco di Desio e della Brianza’s latest financial position, by checking our visualisation of its financial health.
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. For the purpose of this article, we only scrutinise the last decade of Banco di Desio e della Brianza’s dividend payments. This dividend has been unstable, which we define as having fallen by at least 20% one or more times over this time. During the past ten-year period, the first annual payment was €0.10 in 2010, compared to €0.084 last year. This works out to be a decline of approximately 2.2% per year over that time. Banco di Desio e della Brianza’s dividend has been cut sharply at least once, so it hasn’t fallen by 2.2% every year, but this is a decent approximation of the long term change.
We struggle to make a case for buying Banco di Desio e della Brianza for its dividend, given that payments have shrunk over the past ten years.
Dividend Growth Potential
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share (EPS) are growing – it’s not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Earnings have grown at around 3.3% a year for the past five years, which is better than seeing them shrink! Growth has been hard to come by. However, the payout ratio is low, and some companies can deliver adequate dividend performance simply by increasing the payout ratio.
To summarise, shareholders should always check that Banco di Desio e della Brianza’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We’re glad to see Banco di Desio e della Brianza has a low payout ratio, as this suggests earnings are being reinvested in the business. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. In summary, we’re unenthused by Banco di Desio e della Brianza 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.
Now, if you want to look closer, it would be worth checking out our free research on Banco di Desio e della Brianza management tenure, salary, and performance.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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