Read This Before Buying Rami Levi Chain Stores Hashikma Marketing 2006 Ltd (TLV:RMLI) For Its Dividend

Is Rami Levi Chain Stores Hashikma Marketing 2006 Ltd (TLV:RMLI) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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 2.8% 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. Some simple analysis can reduce the risk of holding Rami Levi Chain Stores Hashikma Marketing 2006 for its dividend, and we'll focus on the most important aspects below.

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

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 73% of Rami Levi Chain Stores Hashikma Marketing 2006's profits were paid out as dividends in the last 12 months. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.

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 paid out 23% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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.

Consider getting our latest analysis on Rami Levi Chain Stores Hashikma Marketing 2006's financial position 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. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ₪5.1 in 2010, compared to ₪6.2 last year. This works out to be a compound annual growth rate (CAGR) of approximately 1.9% a year over that time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

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. Earnings have grown at around 4.2% a year for the past five years, which is better than seeing them shrink! 4.2% per annum is not a particularly high rate of growth, which we find curious. When a business is not growing, it often makes more sense to pay higher dividends to shareholders rather than retain the cash with no way to utilise it.

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. First, we think Rami Levi Chain Stores Hashikma Marketing 2006 has an acceptable payout ratio and its dividend is well covered by cashflow. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Rami Levi Chain Stores Hashikma Marketing 2006 that investors should know about before committing capital to this stock.

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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