Dividend paying stocks like Gazit Globe Ltd (TLV:GZT) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. 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.
A high yield and a long history of paying dividends is an appealing combination for Gazit Globe. It would not be a surprise to discover that many investors buy it for the dividends. The company also bought back stock equivalent to around 21% of market capitalisation this year. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
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. Although it reported a loss over the past 12 months, Gazit Globe currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
Gazit Globe paid out 69% of its cash flow as dividends last year, which is within a reasonable range for the average corporation.
Consider getting our latest analysis on Gazit Globe'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. Gazit Globe 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 ₪1.5 in 2011, compared to ₪1.2 last year. The dividend has shrunk at around 2.1% a year during that period. Gazit Globe's dividend has been cut sharply at least once, so it hasn't fallen by 2.1% every year, but this is a decent approximation of the long term change.
We struggle to make a case for buying Gazit Globe for its dividend, given that payments have shrunk over the past 10 years.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. It's good to see Gazit Globe has been growing its earnings per share at 54% a year over the past five years.
Conclusion
To summarise, shareholders should always check that Gazit Globe's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Gazit Globe paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by 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, Gazit Globe 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.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Gazit Globe 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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About TASE:GCT
G City
Through its subsidiaries, owns, develops, manages, and operates supermarket-anchored urban shopping centers and retail-based mixed-use properties in Israel, North America, Brazil, and Northern and Central Europe.
Good value with mediocre balance sheet.