Does Stemmer Imaging AG (ETR:S9I) Have A Place In Your Dividend Stock Portfolio?

Is Stemmer Imaging AG (ETR:S9I) 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 stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

With only a two-year payment history, and a 1.8% yield, investors probably think Stemmer Imaging is not much of a dividend stock. While it may not look like much, if earnings are growing it could become quite interesting. That said, the recent jump in the share price will make Stemmer Imaging's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding Stemmer Imaging for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Stemmer Imaging!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, 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. While Stemmer Imaging pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Stemmer Imaging paid out 102% of its free cash flow last year, suggesting the dividend is poorly covered by cash flow.

With a strong net cash balance, Stemmer Imaging investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Stemmer Imaging every 24 hours, so you can always get our latest analysis of its financial health, 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. The company has been paying a stable dividend for a few years now, but we'd like to see more evidence of consistency over a longer period. Its most recent annual dividend was €0.5 per share, effectively flat on its first payment two years ago.

We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Stemmer Imaging's earnings per share have shrunk at 99% a year over the past three years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that Stemmer Imaging's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with Stemmer Imaging paying a dividend while loss-making, especially since the dividend was also not well covered by free cash flow. Earnings per share are down, and to our mind Stemmer Imaging has not been paying a dividend long enough to demonstrate its resilience across economic cycles. In this analysis, Stemmer Imaging 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Stemmer Imaging that investors need to be conscious of moving forward.

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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