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

Is SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (HMSE:NEP) 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 1.3% yield and a five-year payment history, investors probably think SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft 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. 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 SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft!

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. 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.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Unfortunately, while SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

Remember, you can always get a snapshot of SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft'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 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 2016, compared to €0.5 last year. The dividend has fallen 50% over that period.

We struggle to make a case for buying SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft for its dividend, given that payments have shrunk over the past five years.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Unfortunately, the company has not been able to generate earnings growth, and cut its dividend at least once in the past. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for SLOMAN NEPTUN Schiffahrts-Aktiengesellschaft (2 are a bit unpleasant!) that you should be aware of before investing.

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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