Is B3 S.A. - Brasil, Bolsa, Balcão (BVMF:B3SA3) A Smart Choice For Dividend Investors?

Is B3 S.A. - Brasil, Bolsa, Balcão (BVMF:B3SA3) 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 your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A 0.5% yield is nothing to get excited about, but investors probably think the long payment history suggests B3 - Brasil Bolsa Balcão has some staying power. There are a few simple ways to reduce the risks of buying B3 - Brasil Bolsa Balcão for its dividend, and we'll go through these below.

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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. B3 - Brasil Bolsa Balcão paid out 15% of its profit as dividends, over the trailing twelve month period. We'd say its dividends are thoroughly covered by earnings.

Consider getting our latest analysis on B3 - Brasil Bolsa Balcão'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. For the purpose of this article, we only scrutinise the last decade of B3 - Brasil Bolsa Balcão's dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was R$0.4 in 2011, compared to R$0.3 last year. The dividend has shrunk at around 2.2% a year during that period. B3 - Brasil Bolsa Balcão's dividend hasn't shrunk linearly at 2.2% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying B3 - Brasil Bolsa Balcão for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Earnings have grown at around 3.2% a year for the past five years, which is better than seeing them shrink! As we saw above, earnings per share growth has not been strong. However, the payout ratio is low, and some companies can deliver adequate dividend performance simply by increasing the payout ratio.

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. We're glad to see B3 - Brasil Bolsa Balcão has a low payout ratio, as this suggests earnings are being reinvested in the business. Second, earnings growth has been ordinary, and its history of dividend payments is chequered - having cut its dividend at least once in the past. B3 - Brasil Bolsa Balcão might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 B3 - Brasil Bolsa Balcão analysts we track are forecasting continued growth with our free report on analyst estimates for the company.

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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