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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Fope S.p.A. (BIT:FPE) has started paying a dividend to shareholders. It currently trades on a yield of 1.9%. Does Fope tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
View our latest analysis for Fope
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is their annual yield among the top 25% of dividend payers?
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Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
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Has dividend per share risen in the past couple of years?
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Does earnings amply cover its dividend payments?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Fope fit our criteria?
The current trailing twelve-month payout ratio for the stock is 25%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Fope as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether FPE one as a stable dividend player.
Relative to peers, Fope produces a yield of 1.9%, which is high for Luxury stocks but still below the low risk savings rate.
Next Steps:
After digging a little deeper into Fope’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three fundamental aspects you should look at: