Could Rami Levi Chain Stores Hashikma Marketing 2006 Ltd (TLV:RMLI) Have The Makings Of Another Dividend Aristocrat?

Today we'll take a closer look at Rami Levi Chain Stores Hashikma Marketing 2006 Ltd (TLV:RMLI) 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. 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.

A 2.7% yield is nothing to get excited about, but investors probably think the long payment history suggests Rami Levi Chain Stores Hashikma Marketing 2006 has some staying power. There are a few simple ways to reduce the risks of buying Rami Levi Chain Stores Hashikma Marketing 2006 for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Rami Levi Chain Stores Hashikma Marketing 2006!

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Rami Levi Chain Stores Hashikma Marketing 2006 paid out 99% of its profit as dividends, over the trailing twelve month period. This is quite a high payout ratio that suggests the dividend is not well covered by earnings.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Rami Levi Chain Stores Hashikma Marketing 2006's cash payout ratio last year was 23%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. While the dividend was not well covered by profits, at least they were covered by free cash flow. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

With a strong net cash balance, Rami Levi Chain Stores Hashikma Marketing 2006 investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Rami Levi Chain Stores Hashikma Marketing 2006 every 24 hours, so you can always get our latest analysis of its financial health, here.

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. Rami Levi Chain Stores Hashikma Marketing 2006 has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of 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 ₪5.2 in 2011, compared to ₪5.8 last year. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. The dividends haven't grown at precisely 1.1% every year, but this is a useful way to average out the historical rate of growth.

We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.

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 Rami Levi Chain Stores Hashikma Marketing 2006 has been growing its earnings per share at 18% a year over the past five years. Although earnings per share are up nicely Rami Levi Chain Stores Hashikma Marketing 2006 is paying out 99% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

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. We're a bit uncomfortable with its high payout ratio, although at least the dividend was covered by free cash flow. 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. Ultimately, Rami Levi Chain Stores Hashikma Marketing 2006 comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Rami Levi Chain Stores Hashikma Marketing 2006 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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