January 20, 2022

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Should You Or Shouldn’t You: A Dividend Analysis on CTT

Is CTT – Correios De Portugal, S.A. (ELI:CTT) 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.

With a six-year payment history and a 4.8% yield, many investors probably find CTT – Correios De Portugal intriguing. We’d agree the yield does look enticing. Some simple research can reduce the risk of buying CTT – Correios De Portugal for its dividend – read on to learn more.

Click the interactive chart for our full dividend analysis

ENXTLS:CTT Historical Dividend Yield April 13th 2020

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. CTT – Correios De Portugal paid out 57% of its profit as dividends, over the trailing twelve month period. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. CTT – Correios De Portugal paid out 5.6% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

With a strong net cash balance, CTT – Correios De Portugal investors may not have much to worry about in the near term from a dividend perspective.

We update our data on CTT – Correios De Portugal 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. Looking at the data, we can see that CTT – Correios De Portugal has been paying a dividend for the past six years. It’s good to see that CTT – Correios De Portugal has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we’re concerned that what has been cut once, could be cut again. During the past six-year period, the first annual payment was €0.40 in 2014, compared to €0.11 last year. Dividend payments have fallen sharply, down 73% 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. Over the past five years, it looks as though CTT – Correios De Portugal’s EPS have declined at around 18% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. CTT – Correios De Portugal’s payout ratios are within a normal range for the average corporation, and we like that its cashflow was stronger than reported profits. Earnings per share are down, and CTT – Correios De Portugal’s dividend has been cut at least once in the past, which is disappointing. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than CTT – Correios De Portugal out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we’ve identified 4 warning signs for CTT – Correios De Portugal that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at [email protected] 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.

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