Could HolidayCheck Group AG (ETR:HOC) 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 popular dividend stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
With a 1.6% yield and a nine-year payment history, investors probably think HolidayCheck Group looks like a reliable dividend stock. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. Some simple research can reduce the risk of buying HolidayCheck Group for its dividend – read on to learn more.
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XTRA:HOC Historical Dividend Yield, February 25th 2020
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. While HolidayCheck Group pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
With a strong net cash balance, HolidayCheck Group investors may not have much to worry about in the near term from a dividend perspective.
Consider getting our latest analysis on HolidayCheck Group’s financial position here.
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. Looking at the last decade of data, we can see that HolidayCheck Group paid its first dividend at least nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we’re cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was €0.05 in 2011, compared to €0.04 last year. The dividend has shrunk at around 2.4% a year during that period. HolidayCheck Group’s dividend has been cut sharply at least once, so it hasn’t fallen by 2.4% every year, but this is a decent approximation of the long term change.
When a company’s per-share dividend falls we question if this reflects poorly on either external business conditions, or the company’s capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.
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. Over the past five years, it looks as though HolidayCheck Group’s EPS have declined at around 13% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and HolidayCheck Group’s earnings per share, which support the dividend, have been anything but stable.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We’re a bit uncomfortable with it paying a dividend while reporting a loss over the past year. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. With this information in mind, we think HolidayCheck Group may not be an ideal dividend stock.
Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from costs or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 4 analysts we track are forecasting for the future.
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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