Could Brd. Klee A/S (CPH:KLEE B) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
A high yield and a long history of paying dividends is an appealing combination for Brd. Klee. We'd guess that plenty of investors have purchased it for the income. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. 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 90% of Brd. Klee's profits were paid out as dividends in the last 12 months. This is quite a high payout ratio that suggests the dividend is not well covered by earnings.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Brd. Klee's cash payout ratio last year was 24%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's good to see that while Brd. Klee's dividends were not well covered by profits, at least they are affordable from a free cash flow perspective. Even so, if the company were to continue paying out almost all of its profits, we'd be concerned about whether the dividend is sustainable in a downturn.
While the above analysis focuses on dividends relative to a company's earnings, we do note Brd. Klee's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Remember, you can always get a snapshot of Brd. Klee's latest financial position, by checking our visualisation of its financial health.
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. Brd. Klee has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was kr.350 in 2011, compared to kr.85.1 last year. The dividend has fallen 76% over that period.
We struggle to make a case for buying Brd. Klee for its dividend, given that payments have shrunk over the past 10 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. In the last five years, Brd. Klee's earnings per share have shrunk at approximately 7.6% per annum. A modest decline in earnings per share is not great to see, but it doesn't automatically make a dividend unsustainable. Still, we'd vastly prefer to see EPS growth when researching dividend stocks.
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. We're a bit uncomfortable with its high payout ratio, although at least the dividend was covered by free cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, Brd. Klee has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.
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 4 warning signs for Brd. Klee (1 makes us a bit uncomfortable!) 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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