Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Is Kuehne + Nagel International AG (VTX:KNIN) 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.
In this case, Kuehne + Nagel International likely looks attractive to investors, given its 4.2% 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 Kuehne + Nagel International for its dividend – read on to learn more.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Kuehne + Nagel International paid out 94% of its profit as dividends, over the trailing twelve month period. Its payout ratio is quite high, and the dividend is not well covered by earnings. If earnings are growing or the company has a large cash balance, this might be sustainable – still, we think it is a concern.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Kuehne + Nagel International paid out 126% of its free cash flow last year, which we think is concerning if cash flows do not improve. As Kuehne + Nagel International’s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
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. Kuehne + Nagel International has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have fallen by 20% or more on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was CHF2.30 in 2009, compared to CHF6.00 last year. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. The dividends haven’t grown at precisely 10% every year, but this is a useful way to average out the historical rate of growth.
Kuehne + Nagel International 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
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. Earnings have grown at around 5.1% a year for the past five years, which is better than seeing them shrink! Although per-share earnings are growing at a credible rate, virtually all of the income is being paid out as dividends to shareholders. This is okay, but may limit growth in the company’s future dividend payments.
To summarise, shareholders should always check that Kuehne + Nagel International’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. It’s a concern to see that the company paid out such a high percentage of its earnings and cashflow as dividends. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. In this analysis, Kuehne + Nagel International doesn’t shape up too well as a dividend stock. We’d find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 18 Kuehne + Nagel International 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%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.