Are Dividend Investors Getting More Than They Bargained For With A.P.N. Promise S.A.'s (WSE:PRO) Dividend?

Today we'll take a closer look at A.P.N. Promise S.A. (WSE:PRO) 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.

With a four-year payment history and a 4.5% yield, many investors probably find A.P.N. Promise intriguing. We'd agree the yield does look enticing. There are a few simple ways to reduce the risks of buying A.P.N. Promise for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on A.P.N. Promise!

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. A.P.N. Promise paid out 80% of its profit as dividends, over the trailing twelve month period. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.

While the above analysis focuses on dividends relative to a company's earnings, we do note A.P.N. Promise's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of A.P.N. Promise's latest financial position, by checking our visualisation of its financial health.

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. A.P.N. Promise 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 zł0.5 in 2017, compared to zł0.2 last year. The dividend has fallen 57% over that period.

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

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. A.P.N. Promise's EPS have fallen by approximately 26% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and A.P.N. Promise's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that A.P.N. Promise's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think A.P.N. Promise has an acceptable payout ratio. 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. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than A.P.N. Promise out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for A.P.N. Promise (1 is a bit concerning!) 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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