Argentex Group Plc's (LON:AGFX) Attractive Combination: Does It Earn A Place In Your Dividend Portfolio?

Today we'll take a closer look at Argentex Group Plc (LON:AGFX) 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 popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

Argentex Group has only been paying a dividend for a year or so, so investors might be curious about its 1.6% yield. Some simple analysis can reduce the risk of holding Argentex Group for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Argentex Group!

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. 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. Looking at the data, we can see that 30% of Argentex Group's profits were paid out as dividends in the last 12 months. 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.

Consider getting our latest analysis on Argentex Group's financial position 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. 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 UK£0.02 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.

Conclusion

To summarise, shareholders should always check that Argentex Group's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Argentex Group has a low and conservative payout ratio. Unfortunately, there hasn't been any earnings growth, and the company's dividend history is shorter than the 10 years we ideally like to see before making a strong judgement. In summary, we're unenthused by Argentex Group as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Argentex Group that you should be aware of before investing.

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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