Three Things You Should Check Before Buying Empresa Constructora Moller y Pérez Cotapos S.A. (SNSE:MOLLER) For Its Dividend

Dividend paying stocks like Empresa Constructora Moller y Pérez Cotapos S.A. (SNSE:MOLLER) 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. 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.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Empresa Constructora Moller y Pérez Cotapos is a new dividend aristocrat in the making. We'd agree the yield does look enticing. There are a few simple ways to reduce the risks of buying Empresa Constructora Moller y Pérez Cotapos for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Empresa Constructora Moller y Pérez Cotapos!

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. In the last year, Empresa Constructora Moller y Pérez Cotapos paid out 60% of its profit as dividends. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

We update our data on Empresa Constructora Moller y Pérez Cotapos every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Looking at the data, we can see that Empresa Constructora Moller y Pérez Cotapos has been paying a dividend for the past four years. This company's dividend has been unstable, and with a relatively short history, we think it's a little soon to draw strong conclusions about its long term dividend potential. 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. It's not great to see that Empresa Constructora Moller y Pérez Cotapos' have fallen at approximately 5.7% over the past five years. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company's dividend.

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. Empresa Constructora Moller y Pérez Cotapos' payout ratio is within an average range for most market participants. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, we're unenthused by Empresa Constructora Moller y Pérez Cotapos 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Empresa Constructora Moller y Pérez Cotapos (1 is potentially serious!) that you should be aware of before investing.

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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