Would Société de Services, de Participations, de Direction et d'Elaboration (EBR:SPA) Be Valuable To Income Investors?

Is Société de Services, de Participations, de Direction et d'Elaboration (EBR:SPA) 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 the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

While Société de Services de Participations de Direction et d'Elaboration's 1.1% dividend yield is not the highest, we think its lengthy payment history is quite interesting. There are a few simple ways to reduce the risks of buying Société de Services de Participations de Direction et d'Elaboration for its dividend, and we'll go through these below.

Click the interactive chart for our full dividend analysis

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. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 36% of Société de Services de Participations de Direction et d'Elaboration's profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. The company paid out 54% of its free cash flow, which is not bad per se, but does start to limit the amount of cash Société de Services de Participations de Direction et d'Elaboration has available to meet other needs. It's positive to see that Société de Services de Participations de Direction et d'Elaboration's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

While the above analysis focuses on dividends relative to a company's earnings, we do note Société de Services de Participations de Direction et d'Elaboration's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Consider getting our latest analysis on Société de Services de Participations de Direction et d'Elaboration's financial position 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 Société de Services de Participations de Direction et d'Elaboration's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was €1.0 in 2011, compared to €2.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time.

Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Société de Services de Participations de Direction et d'Elaboration has grown its earnings per share at 7.0% per annum over the past five years. Earnings per share have been growing at a credible rate. What's more, the payout ratio is reasonable and provides some protection to the dividend, or even the potential to increase it.

Conclusion

To summarise, shareholders should always check that Société de Services de Participations de Direction et d'Elaboration's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Société de Services de Participations de Direction et d'Elaboration's dividend payout ratios are within normal bounds, although we note its cash flow is not as strong as the income statement would suggest. Earnings growth has been limited, but we like that the dividend payments have been fairly consistent. Overall we think Société de Services de Participations de Direction et d'Elaboration is an interesting dividend stock, although it could be better.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Société de Services de Participations de Direction et d'Elaboration that investors should know about before committing capital to this stock.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

If you’re looking to trade Société de Services de Participations de Direction et d'Elaboration, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.