Is Kri-Kri Milk Industry S.A. (ATH:KRI) The Right Choice For A Smart Dividend Investor?

Is Kri-Kri Milk Industry S.A. (ATH:KRI) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With a 2.8% yield and a six-year payment history, investors probably think Kri-Kri Milk Industry looks like a reliable dividend stock. A 2.8% yield is not inspiring, but the longer payment history has some appeal. There are a few simple ways to reduce the risks of buying Kri-Kri Milk Industry for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Kri-Kri Milk Industry!

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Kri-Kri Milk Industry paid out 36% of its profit as dividends, over the trailing twelve month period. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Plus, there is room to increase the payout ratio over time.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Kri-Kri Milk Industry paid out 80% of its cash flow last year. This may be sustainable but it does not leave much of a buffer for unexpected circumstances. 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, Kri-Kri Milk Industry investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Kri-Kri Milk Industry'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. Kri-Kri Milk Industry has been paying a dividend for the past six years. The company has been paying a stable dividend for a while now, which is great. However we'd prefer to see consistency for a few more years before giving it our full seal of approval. During the past six-year period, the first annual payment was €0.06 in 2014, compared to €0.2 last year. Dividends per share have grown at approximately 20% per year over this time.

We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

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. It's good to see Kri-Kri Milk Industry has been growing its earnings per share at 36% a year over the past five years. With high earnings per share growth in recent times and a modest payout ratio, we think this is an attractive combination if earnings can be reinvested to generate further growth.

Conclusion

To summarise, shareholders should always check that Kri-Kri Milk Industry's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Above all, we're glad to see that Kri-Kri Milk Industry pays out a low fraction of its earnings and, while it paid a higher percentage of cashflow, this also was within a normal range. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. Overall we think Kri-Kri Milk Industry is an interesting dividend stock, although it could be better.

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. For instance, we've picked out 1 warning sign for Kri-Kri Milk Industry that investors should take into consideration.

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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