Looking For Steady Income For Your Dividend Portfolio? Is HSBC Bank Malta p.l.c. (MTSE:HSB) A Good Fit?

Today we'll take a closer look at HSBC Bank Malta p.l.c. (MTSE:HSB) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. 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 slim 1.4% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, HSBC Bank Malta could have potential. Some simple analysis can reduce the risk of holding HSBC Bank Malta for its dividend, and we'll focus on the most important aspects below.

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Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, HSBC Bank Malta paid out 55% 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.

Remember, you can always get a snapshot of HSBC Bank Malta's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. HSBC Bank Malta has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was €0.1 in 2011, compared to €0.01 last year. This works out to a decline of approximately 91% over that time.

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

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. HSBC Bank Malta's earnings per share have shrunk at 24% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and HSBC Bank Malta's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that HSBC Bank Malta's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think HSBC Bank Malta has an acceptable payout ratio. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. With this information in mind, we think HSBC Bank Malta may not be an ideal dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for HSBC Bank Malta (1 doesn't sit too well with us!) that you should be aware of before investing.

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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