Today we’ll take a closer look at The Israel Land Development Company Ltd. (TLV:ILDC) 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 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.
Investors might not know much about Israel Land Development’s dividend prospects, even though it has been paying dividends for the last eight years and offers a 1.6% yield. While the yield may not look too great, the relatively long payment history is interesting. The company also bought back stock during the year, equivalent to approximately 1.0% of the company’s market capitalisation at the time. That said, the recent jump in the share price will make Israel Land Development’s dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Israel Land Development for its dividend – read on to learn more.
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. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 126% of Israel Land Development’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.
We update our data on Israel Land Development every 24 hours, so you can always get our latest analysis of its financial health, here.
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. The first recorded dividend for Israel Land Development, in the last decade, was eight years ago. It’s good to see that Israel Land Development has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we’re concerned that what has been cut once, could be cut again. During the past eight-year period, the first annual payment was ₪1.10 in 2012, compared to ₪0.71 last year. This works out to be a decline of approximately 5.3% per year over that time. Israel Land Development’s dividend hasn’t shrunk linearly at 5.3% per annum, but the CAGR is a useful estimate of the historical rate of change.
We struggle to make a case for buying Israel Land Development for its dividend, given that payments have shrunk over the past eight years.
Dividend Growth Potential
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Israel Land Development’s EPS have declined at around 8.2% a year. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.
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. We’re a bit uncomfortable with its high payout ratio. Earnings per share are down, and Israel Land Development’s dividend has been cut at least once in the past, which is disappointing. In short, we’re not keen on Israel Land Development from a dividend perspective. Businesses can change, but we’ve spotted a few too many concerns with this one to get comfortable.
Are management backing themselves to deliver performance? Check their shareholdings in Israel Land Development in our latest insider ownership analysis.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.