Three Things You Should Check Before Buying UnipolSai Assicurazioni S.p.A. (BIT:US) For Its Dividend

Could UnipolSai Assicurazioni S.p.A. (BIT:US) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the 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.

In this case, UnipolSai Assicurazioni likely looks attractive to investors, given its 7.5% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. There are a few simple ways to reduce the risks of buying UnipolSai Assicurazioni for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on UnipolSai Assicurazioni!

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. 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. UnipolSai Assicurazioni paid out 66% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

Consider getting our latest analysis on UnipolSai Assicurazioni's financial position 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. For the purpose of this article, we only scrutinise the last decade of UnipolSai Assicurazioni'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 €40.0 in 2011, compared to €0.2 last year. The dividend has fallen 100% over that period.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

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. UnipolSai Assicurazioni's EPS are effectively flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation. Growth of 0.2% 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.

We'd also point out that UnipolSai Assicurazioni issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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 UnipolSai Assicurazioni has an acceptable payout ratio. Unfortunately, the company has not been able to generate earnings growth, and cut its dividend at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than UnipolSai Assicurazioni out there.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, UnipolSai Assicurazioni has 2 warning signs (and 1 which can't be ignored) we think 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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