Is Public Joint Stock Company Aeroflot - Russian Airlines (MCX:AFLT) At Risk Of Cutting Its Dividend?

Today we'll take a closer look at Public Joint Stock Company Aeroflot - Russian Airlines (MCX:AFLT) 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. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A high yield and a long history of paying dividends is an appealing combination for Aeroflot - Russian Airlines. We'd guess that plenty of investors have purchased it for the income. 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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Although it reported a loss over the past 12 months, Aeroflot - Russian Airlines currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Aeroflot - Russian Airlines' cash payout ratio last year was 3.3%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.

We update our data on Aeroflot - Russian Airlines every 24 hours, so you can always get our latest analysis of its financial health, 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. Aeroflot - Russian Airlines 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 ₽0.3 in 2011, compared to ₽2.7 last year. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Aeroflot - Russian Airlines' dividend payments have fluctuated, so it hasn't grown 23% 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

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. Aeroflot - Russian Airlines' earnings per share have shrunk at 44% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Aeroflot - Russian Airlines' earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Aeroflot - Russian Airlines' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. Earnings per share are down, and Aeroflot - Russian Airlines' dividend has been cut at least once in the past, which is disappointing. Overall, Aeroflot - Russian Airlines falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Aeroflot - Russian Airlines (2 shouldn't be ignored!) 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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