Read This Before Buying Arnoldo Mondadori Editore S.p.A. (BIT:MN) For Its Dividend

Could Arnoldo Mondadori Editore S.p.A. (BIT:MN) 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. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A high yield and a long history of paying dividends is an appealing combination for Arnoldo Mondadori Editore. We'd guess that plenty of investors have purchased it for the income. During the year, the company also conducted a buyback equivalent to around 0.8% of its market capitalisation. Remember though, due to the recent spike in its share price, Arnoldo Mondadori Editore's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Some simple analysis can reduce the risk of holding Arnoldo Mondadori Editore for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Arnoldo Mondadori Editore!

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. In the last year, Arnoldo Mondadori Editore paid out 63% of its profit as dividends. 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.

Consider getting our latest analysis on Arnoldo Mondadori Editore'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. Arnoldo Mondadori Editore has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was €0.2 in 2011, compared to €0.06 last year. The dividend has shrunk at around 9.9% a year during that period. Arnoldo Mondadori Editore's dividend hasn't shrunk linearly at 9.9% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Arnoldo Mondadori Editore 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. It's good to see Arnoldo Mondadori Editore has been growing its earnings per share at 37% a year over the past five years. With recent, rapid earnings per share growth and a payout ratio of 63%, this business looks like an interesting prospect if earnings are reinvested effectively.

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. Arnoldo Mondadori Editore's payout ratio is within an average range for most market participants. 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. Arnoldo Mondadori Editore has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Arnoldo Mondadori Editore that investors should know about before committing capital to this stock.

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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