Do Investors Have Good Reason To Be Wary Of Vente-Unique.com SA's (EPA:ALVU) 1.2% Dividend Yield?

Is Vente-Unique.com SA (EPA:ALVU) 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.

Some readers mightn't know much about Vente-Unique.com's 1.2% dividend, as it has only been paying distributions for the last two years. While it may not look like much, if earnings are growing it could become quite interesting. Remember though, due to the recent spike in its share price, Vente-Unique.com's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on Vente-Unique.com!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Vente-Unique.com paid out 72% of its profit as dividends, over the trailing twelve month period. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.

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

We update our data on Vente-Unique.com every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. The company has been paying a stable dividend for a few years now, but we'd like to see more evidence of consistency over a longer period. During the past two-year period, the first annual payment was €0.1 in 2019, compared to €0.2 last year. This works out to be a compound annual growth rate (CAGR) of approximately 3.3% a year over that time.

We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Over the past five years, it looks as though Vente-Unique.com's EPS have declined at around 8.8% a year. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company's dividend.

Conclusion

To summarise, shareholders should always check that Vente-Unique.com's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Vente-Unique.com's payout ratio is within an average range for most market participants. Earnings per share are down, and to our mind Vente-Unique.com has not been paying a dividend long enough to demonstrate its resilience across economic cycles. With this information in mind, we think Vente-Unique.com may not be an ideal dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Vente-Unique.com that investors need to be conscious of moving forward.

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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