Should You Or Shouldn't You: A Dividend Analysis on F.I.L.A. - Fabbrica Italiana Lapis ed Affini S.p.A. (BIT:FILA)

Is F.I.L.A. - Fabbrica Italiana Lapis ed Affini S.p.A. (BIT:FILA) 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.

Investors might not know much about F.I.L.A. - Fabbrica Italiana Lapis ed Affini's dividend prospects, even though it has been paying dividends for the last five years and offers a 1.3% yield. While the yield may not look too great, the relatively long payment history is interesting. Some simple analysis can reduce the risk of holding F.I.L.A. - Fabbrica Italiana Lapis ed Affini for its dividend, and we'll focus on the most important aspects below.

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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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, F.I.L.A. - Fabbrica Italiana Lapis ed Affini paid out 71% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

Remember, you can always get a snapshot of F.I.L.A. - Fabbrica Italiana Lapis ed Affini's latest financial position, by checking our visualisation of its financial health.

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. Looking at the data, we can see that F.I.L.A. - Fabbrica Italiana Lapis ed Affini has been paying a dividend for the past five years. During the past five-year period, the first annual payment was €0.09 in 2016, compared to €0.1 last year. Dividends per share have grown at approximately 5.9% per year over this time.

F.I.L.A. - Fabbrica Italiana Lapis ed Affini has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Earnings have grown at around 3.4% a year for the past five years, which is better than seeing them shrink! Growth of 3.4% is relatively anaemic growth, which we wonder about. If the company is struggling to grow, perhaps that's why it elects to pay out more than half of its earnings to shareholders.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we think F.I.L.A. - Fabbrica Italiana Lapis ed Affini has an acceptable payout ratio. Second, earnings growth has been ordinary, and its history of dividend payments is shorter than we'd like. In summary, we're unenthused by F.I.L.A. - Fabbrica Italiana Lapis ed Affini 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.

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. To that end, F.I.L.A. - Fabbrica Italiana Lapis ed Affini has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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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