X-Trade Brokers Dom Maklerski S.A. (WSE:XTB) Has Got What It Takes To Be An Attractive Dividend Stock

Today we'll take a closer look at X-Trade Brokers Dom Maklerski S.A. (WSE:XTB) 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. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

Investors might not know much about X-Trade Brokers Dom Maklerski's dividend prospects, even though it has been paying dividends for the last four years and offers a 1.1% yield. A 1.1% yield is not inspiring, but the longer payment history has some appeal. Remember though, due to the recent spike in its share price, X-Trade Brokers Dom Maklerski's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

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, X-Trade Brokers Dom Maklerski paid out 7.1% of its profit as dividends. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

Consider getting our latest analysis on X-Trade Brokers Dom Maklerski's financial position here.

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. Looking at the data, we can see that X-Trade Brokers Dom Maklerski has been paying a dividend for the past four years. It has only been paying dividends for a few short years, and the dividend has already been cut at least once. This is one income stream we're not ready to live on. During the past four-year period, the first annual payment was zł0.3 in 2017, compared to zł0.2 last year. This works out to be a decline of approximately 6.9% per year over that time. X-Trade Brokers Dom Maklerski's dividend has been cut sharply at least once, so it hasn't fallen by 6.9% every year, but this is a decent approximation of the long term change.

A shrinking dividend over a four-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see X-Trade Brokers Dom Maklerski has grown its earnings per share at 27% per annum over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.

Conclusion

To summarise, shareholders should always check that X-Trade Brokers Dom Maklerski'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 glad to see X-Trade Brokers Dom Maklerski has a low payout ratio, as this suggests earnings are being reinvested in the business. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. X-Trade Brokers Dom Maklerski has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

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. Taking the debate a bit further, we've identified 1 warning sign for X-Trade Brokers Dom Maklerski that investors need to be conscious of moving forward.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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