Should You Buy SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP) For Its Dividend?

Dividend paying stocks like SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP) 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 popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

Investors might not know much about SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's dividend prospects, even though it has been paying dividends for the last five years and offers a 1.3% yield. A 1.3% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can reduce the risk of holding SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 244% of SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's profits were paid out as dividends in the last 12 months. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Last year, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

Consider getting our latest analysis on SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's 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. Looking at the data, we can see that SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft has been paying a dividend for the past five years. During the past five-year period, the first annual payment was €1.0 in 2015, compared to €0.5 last year. This works out to a decline of approximately 50% over that time.

A shrinking dividend over a five-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's EPS have declined at around 27% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's 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. SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Earnings per share are down, and SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft's dividend has been cut at least once in the past, which is disappointing. In this analysis, SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (2 can't be ignored!) that you should be aware of before investing.

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