Stock Analysis

Looking For Steady Income For Your Dividend Portfolio? Is Societatea de Investitii Financiare Moldova S.A. (BVB:SIF2) A Good Fit?

BVB:EVER
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Could Societatea de Investitii Financiare Moldova S.A. (BVB:SIF2) 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.

In this case, Societatea de Investitii Financiare Moldova likely looks attractive to investors, given its 4.4% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. The company also returned around 2.3% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on Societatea de Investitii Financiare Moldova!

historic-dividend
BVB:SIF2 Historic Dividend February 2nd 2021

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Societatea de Investitii Financiare Moldova paid out 94% of its profit as dividends, over the trailing twelve month period. Its payout ratio is quite high, and the dividend is not well covered by earnings. If earnings are growing or the company has a large cash balance, this might be sustainable - still, we think it is a concern.

Remember, you can always get a snapshot of Societatea de Investitii Financiare Moldova'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. Societatea de Investitii Financiare Moldova has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was RON0.03 in 2011, compared to RON0.06 last year. Dividends per share have grown at approximately 7.2% per year over this time. Societatea de Investitii Financiare Moldova's dividend payments have fluctuated, so it hasn't grown 7.2% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

Dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

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. Earnings have grown at around 7.9% a year for the past five years, which is better than seeing them shrink! Although per-share earnings are growing at a credible rate, virtually all of the income is being paid out as dividends to shareholders. This is okay, but may limit growth in the company's future dividend payments.

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. We're a bit uncomfortable with its high payout ratio. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. To conclude, we've spotted a couple of potential concerns with Societatea de Investitii Financiare Moldova that may make it less than ideal candidate for dividend investors.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Societatea de Investitii Financiare Moldova has 3 warning signs (and 1 which is concerning) we think you should know about.

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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