Is Monteiro Aranha S.A. (BVMF:MOAR3) An Attractive Dividend Stock?

Dividend paying stocks like Monteiro Aranha S.A. (BVMF:MOAR3) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Monteiro Aranha likely looks attractive to investors, given its 4.8% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Monteiro Aranha for its dividend - read on to learn more.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. 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. While Monteiro Aranha pays a dividend, it reported a loss over the last year. When a financial business is loss-making and pays a dividend, the dividend is not covered by profits. Its important that investors assess the quality of the company's assets and whether it can return to generating a positive income.

Remember, you can always get a snapshot of Monteiro Aranha's latest financial position, by checking our visualisation of its financial health.

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 Monteiro Aranha'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 R$3.9 in 2011, compared to R$11.2 last year. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Monteiro Aranha's dividend payments have fluctuated, so it hasn't grown 11% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

Monteiro Aranha has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, but it might be worth considering if the business has turned a corner.

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. Over the past five years, it looks as though Monteiro Aranha's EPS have declined at around 34% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Monteiro Aranha's earnings per share, which support the dividend, have been anything but stable.

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. First, it's not great to see a dividend being paid despite the company being unprofitable over the last year. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. With any dividend stock, we look for a sustainable payout ratio, steady dividends, and growing earnings. Monteiro Aranha has a few too many issues for us to get interested.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Monteiro Aranha (1 is potentially serious!) that you should be aware of before investing.

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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