Is CALIDA Holding AG's (VTX:CALN) 2.3% Dividend Sustainable?

Dividend paying stocks like CALIDA Holding AG (VTX:CALN) 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.

A 2.3% yield is nothing to get excited about, but investors probably think the long payment history suggests CALIDA Holding has some staying power. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, 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. CALIDA Holding paid out 187% of its profit as dividends, over the trailing twelve month period. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

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

We update our data on CALIDA Holding every 24 hours, so you can always get our latest analysis of its financial health, 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 CALIDA Holding's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. Its most recent annual dividend was CHF0.8 per share, effectively flat on its first payment 10 years ago.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Over the past five years, it looks as though CALIDA Holding's EPS have declined at around 26% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that CALIDA Holding's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. CALIDA Holding is paying out a larger percentage of its profit than we're comfortable with. Second, earnings per share have actually shrunk, but at least the dividends have been relatively stable. In summary, we're unenthused by CALIDA Holding as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for CALIDA Holding that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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