Stock Analysis

Does Atlantic Grupa d.d. (ZGSE:ATGR) Have A Place In Your Dividend Portfolio?

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ZGSE:ATGR
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Is Atlantic Grupa d.d. (ZGSE:ATGR) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

While Atlantic Grupa d.d's 1.8% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Some simple research can reduce the risk of buying Atlantic Grupa d.d for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Atlantic Grupa d.d!

historic-dividend
ZGSE:ATGR Historic Dividend December 1st 2020

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 24% of Atlantic Grupa d.d's profits were paid out as dividends in the last 12 months. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Atlantic Grupa d.d's cash payout ratio last year was 18%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's positive to see that Atlantic Grupa d.d's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Remember, you can always get a snapshot of Atlantic Grupa d.d's latest financial position, by checking our visualisation of its financial health.

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 Atlantic 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 Kn8.5 in 2010, compared to Kn25.0 last year. Dividends per share have grown at approximately 11% per year over this time. The dividends haven't grown at precisely 11% every year, but this is a useful way to average out the historical rate of growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Atlantic Grupa d.d has grown its earnings per share at 12% per annum over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, we like that Atlantic Grupa d.d has low and conservative payout ratios. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Atlantic Grupa d.d performs highly under this analysis, although it falls slightly short of our exacting standards. At the right valuation, it could be a solid dividend prospect.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Are management backing themselves to deliver performance? Check their shareholdings in Atlantic Grupa d.d in our latest insider ownership analysis.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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About ZGSE:ATGR

Atlantic Grupa d.d

Atlantic Grupa d.d., together with its subsidiaries, engages in the research, development, production, and distribution fast moving consumer goods in Southeast Europe, the European markets, Russia, and the Commonwealth of Independent States.

Flawless balance sheet second-rate dividend payer.