Should Eurazeo SE (EPA:RF) Be Part Of Your Income Portfolio?

Today we'll take a closer look at Eurazeo SE (EPA:RF) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A slim 2.3% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Eurazeo could have potential. There are a few simple ways to reduce the risks of buying Eurazeo for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Eurazeo!

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. Although Eurazeo pays a dividend, it was loss-making during the past year. When a loss-making financial company pays a dividend, the dividend is not being paid out of profit, which is a concern if the company can't return to operating profitably.

We update our data on Eurazeo 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. Eurazeo has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was €0.8 in 2011, compared to €1.5 last year. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year over that time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Eurazeo's earnings per share have shrunk at 46% a year over the past five 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 Eurazeo's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Eurazeo is paying out a dividend despite reporting a loss; clearly a concern. Earnings per share are down, and Eurazeo's dividend has been cut at least once in the past, which is disappointing. With any dividend stock, we look for a sustainable payout ratio, steady dividends, and growing earnings. Eurazeo has a few too many issues for us to get interested.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come accross 2 warning signs for Eurazeo you should be aware of, and 1 of them is a bit unpleasant.

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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