Is nebag ag (VTX:NBEN) An Attractive Dividend Stock?

Could nebag ag (VTX:NBEN) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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.

In this case, nebag ag likely looks attractive to investors, given its 4.1% 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. The company also bought back stock equivalent to around 5.1% of market capitalisation this year. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Explore this interactive chart for our latest analysis on nebag ag!

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 nebag ag pays a dividend, it reported a loss over the last year. When a loss-making financial company pays a dividend, the dividend is not being paid out of profit, which is a concern if the company can't return to operating profitably.

Remember, you can always get a snapshot of nebag ag'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. nebag ag 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 CHF1.2 in 2011, compared to CHF0.4 last year. The dividend has fallen 67% over that period.

We struggle to make a case for buying nebag ag for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. nebag ag's earnings per share have shrunk at 37% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and nebag ag's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that nebag ag's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. 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. nebag ag has a few too many issues for us to get interested.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for nebag ag (of which 1 is concerning!) you should know about.

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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