Dividend paying stocks like Saint Croix Holding Immobilier, SOCIMI, S.A. (BDL:STCXH) 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. If you are hoping to live on the income from dividends, it’s important to be a lot more stringent with your investments than the average punter.
With a five-year payment history and a 3.9% yield, many investors probably find Saint Croix Holding Immobilier SOCIMI intriguing. We’d agree the yield does look enticing. Some simple research can reduce the risk of buying Saint Croix Holding Immobilier SOCIMI for its dividend – read on to learn more.
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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, Saint Croix Holding Immobilier SOCIMI paid out 65% 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.
We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Saint Croix Holding Immobilier SOCIMI paid out 64% of its free cash flow last year, which is acceptable, but is starting to limit the amount of earnings that can be reinvested into the business. It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Is Saint Croix Holding Immobilier SOCIMI’s Balance Sheet Risky?
As Saint Croix Holding Immobilier SOCIMI has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks. A quick way to check a company’s financial situation uses these two ratios: net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and net interest cover. Net debt to EBITDA measures a company’s total debt load relative to its earnings (lower = less debt), while net interest cover measures the company’s ability to pay the interest on its debt (higher = greater ability to pay interest costs). Saint Croix Holding Immobilier SOCIMI is carrying net debt of 3.99 times its EBITDA, which is getting towards the upper limit of our comfort range on a dividend stock that the investor hopes will endure a wide range of economic circumstances.
We calculated its interest cover by measuring its earnings before interest and tax (EBIT), and dividing this by the company’s net interest expense. Saint Croix Holding Immobilier SOCIMI has interest cover of more than 12 times its interest expense, which we think is quite strong.
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 Saint Croix Holding Immobilier SOCIMI has been paying a dividend for the past five years. During the past five-year period, the first annual payment was €0.67 in 2014, compared to €2.94 last year. This works out to be a compound annual growth rate (CAGR) of approximately 34% a year over that time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.
So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It’s good to see Saint Croix Holding Immobilier SOCIMI has been growing its earnings per share at 61% a year over the past 5 years. Earnings per share are sharply up, but we wonder if paying out more than half its earnings (leaving less for reinvestment) is an implicit signal that Saint Croix Holding Immobilier SOCIMI’s growth will be slower in the future.
To summarise, shareholders should always check that Saint Croix Holding Immobilier SOCIMI’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Saint Croix Holding Immobilier SOCIMI’s is paying out more than half its income as dividends, but at least the dividend is covered both by reported earnings and cashflow. 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. In sum, we find it hard to get excited about Saint Croix Holding Immobilier SOCIMI from a dividend perspective. It’s not that we think it’s a bad business; just that there are other companies that perform better on these criteria.
See if management have their own wealth at stake, by checking insider shareholdings in Saint Croix Holding Immobilier SOCIMI stock.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.