Is Groupimo S.A. (EPA:ALIMO) A Good Fit For Your Dividend Portfolio?

Dividend paying stocks like Groupimo S.A. (EPA:ALIMO) 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. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

Groupimo has only been paying a dividend for a year or so, so investors might be curious about its 1.9% yield. Remember though, due to the recent spike in its share price, Groupimo's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Some simple analysis can reduce the risk of holding Groupimo for its dividend, and we'll focus on the most important aspects below.

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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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Groupimo paid out 31% of its profit as dividends, over the trailing twelve month period. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

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

We update our data on Groupimo 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. This company has been paying a dividend for less than 2 years, which we think is too soon to consider it a reliable dividend stock. Its most recent annual dividend was €0.04 per share.

It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential

The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Over the past three years, it looks as though Groupimo's EPS have declined at around 40% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Groupimo's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Groupimo'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 glad to see Groupimo has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings per share have been falling, and the company has a relatively short dividend history - shorter than we like, anyway. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Groupimo out there.

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. To that end, Groupimo has 6 warning signs (and 1 which is significant) we think you should know about.

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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