Factors Income Investors Should Consider Before Adding Empresa Constructora Moller y Pérez Cotapos S.A. (SNSE:MOLLER) To Their Portfolio

Is Empresa Constructora Moller y Pérez Cotapos S.A. (SNSE:MOLLER) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

With a 2.5% yield and a four-year payment history, investors probably think Empresa Constructora Moller y Pérez Cotapos looks like a reliable dividend stock. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. That said, the recent jump in the share price will make Empresa Constructora Moller y Pérez Cotapos's dividend yield look smaller, even though the company prospects could be improving. 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

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. In the last year, Empresa Constructora Moller y Pérez Cotapos paid out 96% of its profit as dividends. With a payout ratio this high, we'd say its dividend is not well covered by earnings. This may be fine if earnings are growing, but it might not take much of a downturn for the dividend to come under pressure.

Consider getting our latest analysis on Empresa Constructora Moller y Pérez Cotapos' financial position 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. Empresa Constructora Moller y Pérez Cotapos has been paying a dividend for the past four years. It has only been paying dividends for a few short years, and the dividend has already been cut at least once. This is one income stream we're not ready to live on. During the past four-year period, the first annual payment was CL$50.7 in 2017, compared to CL$14.1 last year. This works out to a decline of approximately 72% over that time.

We struggle to make a case for buying Empresa Constructora Moller y Pérez Cotapos for its dividend, given that payments have shrunk over the past four 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. Over the past five years, it looks as though Empresa Constructora Moller y Pérez Cotapos' EPS have declined at around 10% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Empresa Constructora Moller y Pérez Cotapos' earnings per share, which support the dividend, have been anything but stable.

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. First, it's not great to see how much of its earnings are being paid as dividends. Earnings per share are down, and Empresa Constructora Moller y Pérez Cotapos' dividend has been cut at least once in the past, which is disappointing. To conclude, we've spotted a couple of potential concerns with Empresa Constructora Moller y Pérez Cotapos that may make it less than ideal candidate for dividend investors.

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. Just as an example, we've come accross 4 warning signs for Empresa Constructora Moller y Pérez Cotapos you should be aware of, and 1 of them is significant.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

If you’re looking to trade Empresa Constructora Moller y Pérez Cotapos, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.