Is Gielda Praw Majatkowych Vindexus Spolka Akcyjna (WSE:VIN) A Great Dividend Stock?

Could Gielda Praw Majatkowych Vindexus Spolka Akcyjna (WSE:VIN) 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. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

Investors might not know much about Gielda Praw Majatkowych Vindexus Spolka Akcyjna's dividend prospects, even though it has been paying dividends for the last seven years and offers a 1.8% yield. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. Some simple analysis can reduce the risk of holding Gielda Praw Majatkowych Vindexus Spolka Akcyjna for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Gielda Praw Majatkowych Vindexus Spolka Akcyjna!

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. 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 25% of Gielda Praw Majatkowych Vindexus Spolka Akcyjna's profits were paid out as dividends in the last 12 months. We'd say its dividends are thoroughly covered by earnings.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Gielda Praw Majatkowych Vindexus Spolka Akcyjna's cash payout ratio last year was 5.1%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that Gielda Praw Majatkowych Vindexus Spolka Akcyjna's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Consider getting our latest analysis on Gielda Praw Majatkowych Vindexus Spolka Akcyjna'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. Gielda Praw Majatkowych Vindexus Spolka Akcyjna has been paying a dividend for the past seven years. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past seven-year period, the first annual payment was zł0.05 in 2014, compared to zł0.1 last year. Dividends per share have grown at approximately 10% per year over this 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.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Gielda Praw Majatkowych Vindexus Spolka Akcyjna's earnings per share have shrunk at 19% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

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. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In sum, we find it hard to get excited about Gielda Praw Majatkowych Vindexus Spolka Akcyjna 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 5 warning signs for Gielda Praw Majatkowych Vindexus Spolka Akcyjna (of which 2 are a bit unpleasant!) you should know about.

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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