Does Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING S.A. (WSE:FSG) Have A Place In Your Dividend Stock Portfolio?

Could Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING S.A. (WSE:FSG) 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 the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A high yield and a long history of paying dividends is an appealing combination for Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING. We'd guess that plenty of investors have purchased it for the income. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

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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, Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING paid out 213% of its profit as dividends. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING paid out a conservative 36% of its free cash flow as dividends last year. It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

We update our data on Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING every 24 hours, so you can always get our latest analysis of its financial health, 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. Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was zł0.5 in 2011, compared to zł0.8 last year. Dividends per share have grown at approximately 4.6% per year over this time. The dividends haven't grown at precisely 4.6% every year, but this is a useful way to average out the historical rate of growth.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

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. Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING's earnings per share have shrunk at 36% 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 Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with its high payout ratio, although at least the dividend was covered by free cash flow. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. Overall, Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for Fabryki Sprzetu i Narzedzi Górniczych Grupa Kapitalowa FASING (1 is a bit unpleasant!) that you should be aware of before investing.

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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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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