Yahoo Finance Should You Or Shouldn't You: A Dividend Analysis on UniCredit S.p.A. (BIT:UCG)
Today we'll take a closer look at UniCredit S.p.A. (BIT:UCG) 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. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
While UniCredit's 2.6% dividend yield is not the highest, we think its lengthy payment history is quite interesting. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Explore this interactive chart for our latest analysis on UniCredit!
Payout ratios
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. In the last year, UniCredit paid out 30% of its profit as dividends. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Plus, there is room to increase the payout ratio over time.
Consider getting our latest analysis on UniCredit's financial position here.
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. UniCredit 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 ten-year period, the first annual payment was €3.00 in 2010, compared to €0.27 last year. This works out to a decline of approximately 91% over that time.
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
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. UniCredit's earnings per share have shrunk at 25% 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 UniCredit's earnings per share, which support the dividend, have been anything but stable.
We'd also point out that UniCredit issued a meaningful number of new shares in the past year. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Conclusion
To summarise, shareholders should always check that UniCredit's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that UniCredit has a low and conservative payout ratio. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than UniCredit out there.
Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 18 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%.
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.
