Could Seguros Vida Security Previsión S.A. (SNSE:PREVISION) 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. 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.
Investors might not know much about Seguros Vida Security Previsión’s dividend prospects, even though it has been paying dividends for the last nine years and offers a 2.0% yield. A 2.0% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can reduce the risk of holding Seguros Vida Security Previsión 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. Seguros Vida Security Previsión paid out of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.
Remember, you can always get a snapshot of Seguros Vida Security Previsión’s latest financial position, by checking our visualisation of its financial health.
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 last decade of data, we can see that Seguros Vida Security Previsión paid its first dividend at least nine years ago. It’s good to see that Seguros Vida Security Previsión 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 nine-year period, the first annual payment was CL$72.50 in 2011, compared to CL$11.00 last year. This works out to a decline of approximately 85% over that time.
We struggle to make a case for buying Seguros Vida Security Previsión for its dividend, given that payments have shrunk over the past nine years.
Dividend Growth Potential
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Seguros Vida Security Previsión’s EPS have declined at around 6.7% a year. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.
We’d also point out that Seguros Vida Security Previsión issued a meaningful number of new shares in the past year. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
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. Firstly, we like that Seguros Vida Security Previsión has a low and conservative payout ratio. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than Seguros Vida Security Previsión out there.
Now, if you want to look closer, it would be worth checking out our free research on Seguros Vida Security Previsión management tenure, salary, and performance.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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