Is GIEAG Immobilien AG (MUN:2GI) A Good Fit For Your Dividend Portfolio?

Is GIEAG Immobilien AG (MUN:2GI) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if GIEAG Immobilien is a new dividend aristocrat in the making. We'd agree the yield does look enticing. 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 GIEAG Immobilien!

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 54% of GIEAG Immobilien's profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

Remember, you can always get a snapshot of GIEAG Immobilien'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. Looking at the data, we can see that GIEAG Immobilien has been paying a dividend for the past five years. During the past five-year period, the first annual payment was €0.5 in 2016, compared to €0.8 last year. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. The dividends haven't grown at precisely 11% every year, but this is a useful way to average out the historical rate of growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Over the past five years, it looks as though GIEAG Immobilien's 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 GIEAG Immobilien's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that GIEAG Immobilien's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. GIEAG Immobilien's payout ratio is within normal bounds. Earnings per share are down, and GIEAG Immobilien's dividend has been cut at least once in the past, which is disappointing. To conclude, we've spotted a couple of potential concerns with GIEAG Immobilien that may make it less than ideal candidate for dividend investors.

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. To that end, GIEAG Immobilien has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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