Here's How We Evaluate Banca Popolare di Sondrio S.C.p.A.'s (BIT:BPSO) Dividend

By
Simply Wall St
Published
August 24, 2020
BIT:BPSO

Dividend paying stocks like Banca Popolare di Sondrio S.C.p.A. (BIT:BPSO) 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. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A 2.4% yield is nothing to get excited about, but investors probably think the long payment history suggests Banca Popolare di Sondrio S.C.p.A has some staying power. Remember though, due to the recent spike in its share price, Banca Popolare di Sondrio S.C.p.A's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. There are a few simple ways to reduce the risks of buying Banca Popolare di Sondrio S.C.p.A for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Banca Popolare di Sondrio S.C.p.A!

historic-dividend
BIT:BPSO Historic Dividend August 25th 2020

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. Looking at the data, we can see that 21% of Banca Popolare di Sondrio S.C.p.A's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

Consider getting our latest analysis on Banca Popolare di Sondrio S.C.p.A'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. For the purpose of this article, we only scrutinise the last decade of Banca Popolare di Sondrio S.C.p.A's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was €0.3 in 2010, compared to €0.05 last year. The dividend has fallen 83% over that period.

We struggle to make a case for buying Banca Popolare di Sondrio S.C.p.A for its dividend, given that payments have shrunk over the past 10 years.

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. Over the past five years, it looks as though Banca Popolare di Sondrio S.C.p.A's EPS have declined at around 5.1% a year. A modest decline in earnings per share is not great to see, but it doesn't automatically make a dividend unsustainable. Still, we'd vastly prefer to see EPS growth when researching dividend stocks.

Conclusion

To summarise, shareholders should always check that Banca Popolare di Sondrio S.C.p.A's 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 Banca Popolare di Sondrio S.C.p.A has a low and conservative payout ratio. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, we're unenthused by Banca Popolare di Sondrio S.C.p.A as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Banca Popolare di Sondrio S.C.p.A that investors should take into consideration.

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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