Are Dividend Investors Getting More Than They Bargained For With Kardan Real Estate Enterprise and Development Ltd.'s (TLV:KARE) Dividend?

Today we'll take a closer look at Kardan Real Estate Enterprise and Development Ltd. (TLV:KARE) 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. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Kardan Real Estate Enterprise and Development likely looks attractive to dividend investors, given its 3.1% dividend yield and seven-year payment history. We'd agree the yield does look enticing. There are a few simple ways to reduce the risks of buying Kardan Real Estate Enterprise and Development for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Kardan Real Estate Enterprise and Development!

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. Kardan Real Estate Enterprise and Development paid out 59% of its profit as dividends, over the trailing twelve month period. 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. Last year, Kardan Real Estate Enterprise and Development paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

Consider getting our latest analysis on Kardan Real Estate Enterprise and Development's financial position here.

Dividend Volatility

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. Looking at the data, we can see that Kardan Real Estate Enterprise and Development has been paying a dividend for the past seven years. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past seven-year period, the first annual payment was ₪0.6 in 2014, compared to ₪0.1 last year. Dividend payments have fallen sharply, down 83% over that time.

We struggle to make a case for buying Kardan Real Estate Enterprise and Development for its dividend, given that payments have shrunk over the past seven 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. It's not great to see that Kardan Real Estate Enterprise and Development's have fallen at approximately 3.3% over the past five years. 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.

Conclusion

To summarise, shareholders should always check that Kardan Real Estate Enterprise and Development's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, the company has a payout ratio that was within an average range for most dividend stocks, but it paid out virtually all of its generated cash flow. Earnings per share are down, and Kardan Real Estate Enterprise and Development's dividend has been cut at least once in the past, which is disappointing. In this analysis, Kardan Real Estate Enterprise and Development doesn't shape up too well as a dividend stock. We'd find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.

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. Case in point: We've spotted 4 warning signs for Kardan Real Estate Enterprise and Development (of which 2 don't sit too well with us!) you should know about.

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