December 3, 2021

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Three Things You Should Check Before Buying Massimo Zanetti Beverage Group S.p.A. (BIT:MZB) For Its Dividend

Is Massimo Zanetti Beverage Group S.p.A. (BIT:MZB) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Massimo Zanetti Beverage Group is a new dividend aristocrat in the making. We’d agree the yield does look enticing. Remember though, given the recent drop in its share price, Massimo Zanetti Beverage Group’s yield will look higher, even though the market may now be expecting a decline in its long-term prospects. There are a few simple ways to reduce the risks of buying Massimo Zanetti Beverage Group for its dividend, and we’ll go through these below.

Click the interactive chart for our full dividend analysis

BIT:MZB Historical Dividend Yield April 29th 2020

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, Massimo Zanetti Beverage Group paid out 43% of its profit as dividends. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Of the free cash flow it generated last year, Massimo Zanetti Beverage Group paid out 26% as dividends, suggesting the dividend is affordable. 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.

Is Massimo Zanetti Beverage Group’s Balance Sheet Risky?

As Massimo Zanetti Beverage Group has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks. A rough way to check this is with these two simple ratios: a) net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and b) net interest cover. Net debt to EBITDA measures total debt load relative to company earnings (lower = less debt), while net interest cover measures the ability to pay interest on the debt (higher = greater ability to pay interest costs). With net debt of 2.95 times its EBITDA, Massimo Zanetti Beverage Group has a noticeable amount of debt, although if business stays steady, this may not be overly concerning.

Net interest cover can be calculated by dividing earnings before interest and tax (EBIT) by the company’s net interest expense. Massimo Zanetti Beverage Group has EBIT of 5.08 times its interest expense, which we think is adequate.

Consider getting our latest analysis on Massimo Zanetti Beverage Group’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. Looking at the data, we can see that Massimo Zanetti Beverage Group has been paying a dividend for the past four years. The company has been paying a stable dividend for a few years now, but we’d like to see more evidence of consistency over a longer period. During the past four-year period, the first annual payment was €0.09 in 2016, compared to €0.19 last year. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time.

The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Over the past five years, it looks as though Massimo Zanetti Beverage Group’s EPS have declined at around 4.9% a year. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

Conclusion

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. Firstly, we like that Massimo Zanetti Beverage Group has low and conservative payout ratios. Earnings per share are down, and to our mind Massimo Zanetti Beverage Group has not been paying a dividend long enough to demonstrate its resilience across economic cycles. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than Massimo Zanetti Beverage Group out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we’ve come accross 3 warning signs for Massimo Zanetti Beverage Group you should be aware of, and 1 of them is significant.

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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