Shareholders Are Loving Odessos Shiprepair Yard S.A.'s (BUL:ODES) 2.0% Yield

Is Odessos Shiprepair Yard S.A. (BUL:ODES) 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.

A 2.0% yield is nothing to get excited about, but investors probably think the long payment history suggests Odessos Shiprepair Yard has some staying power. Some simple research can reduce the risk of buying Odessos Shiprepair Yard for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Odessos Shiprepair Yard!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Odessos Shiprepair Yard paid out 12% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Odessos Shiprepair Yard's cash payout ratio last year was 19%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that Odessos Shiprepair Yard'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.

With a strong net cash balance, Odessos Shiprepair Yard investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Odessos Shiprepair Yard's financial position here.

Dividend Volatility

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. Odessos Shiprepair Yard has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was лв0.6 in 2011, compared to лв2.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that 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.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

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. It's good to see Odessos Shiprepair Yard has been growing its earnings per share at 33% a year over the past five years. The company is only paying out a fraction of its earnings as dividends, and in the past been able to use the retained earnings to grow its profits rapidly - an ideal combination.

Conclusion

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. It's great to see that Odessos Shiprepair Yard is paying out a low percentage of its earnings and cash flow. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Overall we think Odessos Shiprepair Yard scores well on our analysis. It's not quite perfect, but we'd definitely be keen to take a closer look.

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. As an example, we've identified 2 warning signs for Odessos Shiprepair Yard that you should be aware of before investing.

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