Is Bank Hapoalim B.M. (TLV:POLI) A Good Dividend Stock?

Could Bank Hapoalim B.M. (TLV:POLI) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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.

A high yield and a long history of paying dividends is an appealing combination for Bank Hapoalim B.M. We'd guess that plenty of investors have purchased it for the income. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

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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. Looking at the data, we can see that 171% of Bank Hapoalim B.M's profits were paid out as dividends in the last 12 months. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

Consider getting our latest analysis on Bank Hapoalim B.M's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Bank Hapoalim B.M's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was ₪0.2 in 2010, compared to ₪0.7 last year. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. The dividends haven't grown at precisely 14% every year, but this is a useful way to average out the historical rate of growth.

Bank Hapoalim B.M 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.

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? Over the past five years, it looks as though Bank Hapoalim B.M's EPS have declined at around 27% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Bank Hapoalim B.M's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Bank Hapoalim B.M's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, it's not great to see how much of its earnings are being paid as dividends. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. With any dividend stock, we look for a sustainable payout ratio, steady dividends, and growing earnings. Bank Hapoalim B.M has a few too many issues for us to get interested.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Bank Hapoalim B.M that you should be aware of before investing.

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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