Why La Société Industrielle et Financière de l'Artois (EPA:ARTO) Is A Dividend Rockstar

Today we'll take a closer look at La Société Industrielle et Financière de l'Artois (EPA:ARTO) 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. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

A slim 0.9% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, La Société Industrielle et Financière de l'Artois could have potential. Some simple analysis can reduce the risk of holding La Société Industrielle et Financière de l'Artois for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on La Société Industrielle et Financière de l'Artois!

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. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. La Société Industrielle et Financière de l'Artois paid out 36% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. La Société Industrielle et Financière de l'Artois paid out a conservative 32% of its free cash flow as dividends last year. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

With a strong net cash balance, La Société Industrielle et Financière de l'Artois investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of La Société Industrielle et Financière de l'Artois' 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. For the purpose of this article, we only scrutinise the last decade of La Société Industrielle et Financière de l'Artois' dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was €19.0 in 2011, compared to €34.0 last year. Dividends per share have grown at approximately 6.0% per year over this time.

Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. La Société Industrielle et Financière de l'Artois' EPS have fallen by approximately 38% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and La Société Industrielle et Financière de l'Artois' earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that La Société Industrielle et Financière de l'Artois' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. La Société Industrielle et Financière de l'Artois has a number of positive attributes, but it falls slightly short of our (admittedly high) standards. Were there evidence of a strong moat or an attractive valuation, it could still be well worth a look.

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. As an example, we've identified 1 warning sign for La Société Industrielle et Financière de l'Artois 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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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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