Factors Income Investors Should Consider Before Adding Polskie Towarzystwo Wspierania Przedsiebiorczosci S.A. (WSE:PTW) To Their Portfolio

Today we'll take a closer look at Polskie Towarzystwo Wspierania Przedsiebiorczosci S.A. (WSE:PTW) 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 stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

In this case, Polskie Towarzystwo Wspierania Przedsiebiorczosci likely looks attractive to dividend investors, given its 6.9% dividend yield and five-year payment history. We'd agree the yield does look enticing. The company also bought back stock equivalent to around 18% of market capitalisation this year. There are a few simple ways to reduce the risks of buying Polskie Towarzystwo Wspierania Przedsiebiorczosci for its dividend, and we'll go through these below.

Click the interactive chart for our full dividend analysis

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. 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. Polskie Towarzystwo Wspierania Przedsiebiorczosci paid out 2,944% of its profit as dividends, over the trailing twelve month period. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

With a strong net cash balance, Polskie Towarzystwo Wspierania Przedsiebiorczosci investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Polskie Towarzystwo Wspierania Przedsiebiorczosci'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. Looking at the data, we can see that Polskie Towarzystwo Wspierania Przedsiebiorczosci has been paying a dividend for the past five years. During the past five-year period, the first annual payment was zł0.3 in 2015, compared to zł0.8 last year. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Polskie Towarzystwo Wspierania Przedsiebiorczosci's dividend payments have fluctuated, so it hasn't grown 18% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Over the past three years, it looks as though Polskie Towarzystwo Wspierania Przedsiebiorczosci's EPS have declined at around 30% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Polskie Towarzystwo Wspierania Przedsiebiorczosci's earnings per share, which support the dividend, have been anything but stable.

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. Polskie Towarzystwo Wspierania Przedsiebiorczosci is paying out a larger percentage of its profit than we're comfortable with. Earnings per share are down, and Polskie Towarzystwo Wspierania Przedsiebiorczosci's dividend has been cut at least once in the past, which is disappointing. To conclude, we've spotted a couple of potential concerns with Polskie Towarzystwo Wspierania Przedsiebiorczosci that may make it less than ideal candidate for dividend investors.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come accross 4 warning signs for Polskie Towarzystwo Wspierania Przedsiebiorczosci you should be aware of, and 1 of them is potentially serious.

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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