Is Schoeller-Bleckmann Oilfield Equipment Aktiengesellschaft (VIE:SBO) A Smart Choice For Dividend Investors?

Today we'll take a closer look at Schoeller-Bleckmann Oilfield Equipment Aktiengesellschaft (VIE:SBO) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. 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 high yield and a long history of paying dividends is an appealing combination for Schoeller-Bleckmann Oilfield Equipment. It would not be a surprise to discover that many investors buy it for the dividends. The company also returned around 1.2% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Remember though, due to the recent spike in its share price, Schoeller-Bleckmann Oilfield Equipment's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Explore this interactive chart for our latest analysis on Schoeller-Bleckmann Oilfield Equipment!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. While Schoeller-Bleckmann Oilfield Equipment pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Schoeller-Bleckmann Oilfield Equipment's cash payout ratio last year was 23%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.

While the above analysis focuses on dividends relative to a company's earnings, we do note Schoeller-Bleckmann Oilfield Equipment's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Schoeller-Bleckmann Oilfield Equipment every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

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. For the purpose of this article, we only scrutinise the last decade of Schoeller-Bleckmann Oilfield Equipment's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was €0.5 in 2011, compared to €1.2 last year. Dividends per share have grown at approximately 9.1% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

Dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the 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 Schoeller-Bleckmann Oilfield Equipment has grown its earnings per share at 37% per annum over the past five years.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. 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. Ultimately, Schoeller-Bleckmann Oilfield Equipment comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Schoeller-Bleckmann Oilfield Equipment that investors need to be conscious of moving forward.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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