Key Things To Watch Out For If You Are After 4iG Nyrt.'s (BUSE:4IG) 3.4% Dividend

Dividend paying stocks like 4iG Nyrt. (BUSE:4IG) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

In this case, 4iG Nyrt likely looks attractive to dividend investors, given its 3.4% dividend yield and five-year payment history. We'd agree the yield does look enticing. The company also bought back stock during the year, equivalent to approximately 0.8% of the company's market capitalisation at the time. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on 4iG Nyrt!

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. 4iG Nyrt paid out 65% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

With a strong net cash balance, 4iG Nyrt investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of 4iG Nyrt's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that 4iG Nyrt has been paying a dividend for the past five years. During the past five-year period, the first annual payment was Ft2.0 in 2015, compared to Ft22.0 last year. Dividends per share have grown at approximately 62% per year over this time. The dividends haven't grown at precisely 62% every year, but this is a useful way to average out the historical rate of growth.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's good to see 4iG Nyrt has been growing its earnings per share at 57% a year over the past five years. With recent, rapid earnings per share growth and a payout ratio of 65%, this business looks like an interesting prospect if earnings are reinvested effectively.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we think 4iG Nyrt has an acceptable payout ratio. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. 4iG Nyrt has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

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. To that end, 4iG Nyrt has 3 warning signs (and 2 which are significant) we think you should know about.

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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