Lombard Bank Malta p.l.c.'s (MTSE:LOM) Attractive Combination: Does It Earn A Place In Your Dividend Portfolio?

Is Lombard Bank Malta p.l.c. (MTSE:LOM) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

While Lombard Bank Malta's 1.5% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Some simple analysis can reduce the risk of holding Lombard Bank Malta for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Lombard Bank Malta!

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. Looking at the data, we can see that 20% of Lombard Bank Malta's profits were paid out as dividends in the last 12 months. We'd say its dividends are thoroughly covered by earnings.

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

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Lombard Bank Malta's dividend 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 €0.06 in 2011, compared to €0.03 last year. The dividend has shrunk at around 6.9% a year during that period. Lombard Bank Malta's dividend hasn't shrunk linearly at 6.9% per annum, but the CAGR is a useful estimate of the historical rate of change.

We struggle to make a case for buying Lombard Bank Malta for its dividend, given that payments have shrunk over the past 10 years.

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. Lombard Bank Malta has grown its earnings per share at 8.5% per annum over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Lombard Bank Malta's prospects of growing its dividend payments in the future.

Conclusion

To summarise, shareholders should always check that Lombard 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. Firstly, we like that Lombard Bank Malta has a low and conservative payout ratio. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Lombard Bank Malta has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Lombard Bank Malta 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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