How Does Svejsemaskinefabrikken Migatronic A/S (CPH:MIGA B) Fare As A Dividend Stock?
Is Svejsemaskinefabrikken Migatronic A/S (CPH:MIGA B) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
Investors might not know much about Svejsemaskinefabrikken Migatronic's dividend prospects, even though it has been paying dividends for the last five years and offers a 2.3% yield. While the yield may not look too great, the relatively long payment history is interesting. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.
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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, Svejsemaskinefabrikken Migatronic paid out 25% of its profit as dividends. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.
We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Svejsemaskinefabrikken Migatronic paid out 19% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It's positive to see that Svejsemaskinefabrikken Migatronic's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
With a strong net cash balance, Svejsemaskinefabrikken Migatronic investors may not have much to worry about in the near term from a dividend perspective.
We update our data on Svejsemaskinefabrikken Migatronic every 24 hours, so you can always get our latest analysis of its financial health, 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. Svejsemaskinefabrikken Migatronic has been paying a dividend for the past five years. During the past five-year period, the first annual payment was ø10.00 in 2014, compared to ø6.00 last year. The dividend has shrunk at around 9.7% a year during that period. Svejsemaskinefabrikken Migatronic's dividend has been cut sharply at least once, so it hasn't fallen by 9.7% every year, but this is a decent approximation of the long term change.
A shrinking dividend over a five-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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Svejsemaskinefabrikken Migatronic has grown its earnings per share at 22% per annum over the past five years. The company is only paying out a fraction of its earnings as dividends, and in the past been able to use the retained earnings to grow its profits rapidly - an ideal combination.
Conclusion
To summarise, shareholders should always check that Svejsemaskinefabrikken Migatronic'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 like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Svejsemaskinefabrikken Migatronic performs highly under this analysis, although it falls slightly short of our exacting standards. At the right valuation, it could be a solid dividend prospect.
Are management backing themselves to deliver performance? Check their shareholdings in Svejsemaskinefabrikken Migatronic in our latest insider ownership analysis.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
