Monbat AD's (BUL:MONB) Shareholders Will Receive A Smaller Dividend Than Last Year

The board of Monbat AD (BUL:MONB) has announced it will be reducing its dividend by 21% on the 1st of January, with shareholders receiving лв0.14. This means the annual payment is 2.4% of the current stock price, which is above the average for the industry.

View our latest analysis for Monbat AD

Monbat AD Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 234% of what it was earning and 80% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Looking forward, EPS could fall by 37.0% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 267%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was лв0.17, compared to the most recent full-year payment of лв0.18. Its dividends have grown at less than 1% per annum over this time frame. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 37% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Monbat AD's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Monbat AD (of which 2 are a bit unpleasant!) you should know about. Is Monbat AD not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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