Why Dividend Hunters Love Y.D. More Investments Ltd (TLV:MRIN)

Is Y.D. More Investments Ltd (TLV:MRIN) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With only a three-year payment history, and a 2.5% yield, investors probably think Y.D. More Investments is not much of a dividend stock. Many of the best dividend stocks typically start out paying a low yield, so we wouldn't automatically cut it from our list of prospects. That said, the recent jump in the share price will make Y.D. More Investments's dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Y.D. More Investments for its dividend - read on to learn more.

Click the interactive chart for our full dividend analysis

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. 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. In the last year, Y.D. More Investments paid out 32% of its profit as dividends. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

We update our data on Y.D. More Investments every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. This company's dividend has been unstable, and with a relatively short history, we think it's a little soon to draw strong conclusions about its long term dividend potential. During the past three-year period, the first annual payment was ₪0.5 in 2018, compared to ₪0.4 last year. This works out to be a decline of approximately 5.5% per year over that time. Y.D. More Investments' dividend hasn't shrunk linearly at 5.5% per annum, but the CAGR is a useful estimate of the historical rate of change.

A shrinking dividend over a three-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. It's good to see Y.D. More Investments has been growing its earnings per share at 34% a year over the past five years. Earnings per share have rocketed in recent times, and we like that the company is retaining more than half of its earnings to reinvest. However, always remember that very few companies can grow at double digit rates forever.

Conclusion

To summarise, shareholders should always check that Y.D. More Investments' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Y.D. More Investments has a low and conservative payout ratio. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Overall we think Y.D. More Investments is an interesting dividend stock, although it could be better.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Y.D. More Investments (2 are significant!) that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

If you’re looking to trade Y.D. More Investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.