Three Things You Should Check Before Buying Adris grupa d. d. (ZGSE:ADRS) For Its Dividend

Today we'll take a closer look at Adris grupa d. d. (ZGSE:ADRS) 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. 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.

With Adris grupa d. d yielding 4.0% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. The company also returned around 1.1% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Some simple analysis can reduce the risk of holding Adris grupa d. d 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. 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. Although it reported a loss over the past 12 months, Adris grupa d. d currently pays a dividend. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

Last year, Adris grupa d. d paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

Consider getting our latest analysis on Adris grupa d. d'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. For the purpose of this article, we only scrutinise the last decade of Adris grupa d. d's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was Kn7.0 in 2011, compared to Kn18.2 last year. Dividends per share have grown at approximately 10% per year over this time. The dividends haven't grown at precisely 10% every year, but this is a useful way to average out the historical rate of growth.

Adris grupa d. d has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, but it might be worth considering if the business has turned a corner.

Conclusion

To summarise, shareholders should always check that Adris grupa d. d's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Adris grupa d. d has an acceptable payout ratio, although its dividend was not well covered by cashflow. Second, earnings have been essentially flat, and its history of dividend payments is chequered - having cut its dividend at least once in the past. With this information in mind, we think Adris grupa d. d may not be an ideal dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Adris grupa d. d 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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