Today we’ll take a closer look at Direct Finance of Direct Group (2006) Ltd (TLV: DIFI) from a dividend investor’s perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way to grow your wealth. If you hope to live off dividend income, it is important to be much stricter with your investments than the average bettor.
A simple analysis can reduce the risk of owning Direct Finance from Direct Group (2006) for its dividend, and we will focus on the most important aspects below.
Explore this interactive graph for our latest analysis on Direct Finance of Direct Group (2006)!
Companies (usually) pay dividends on their profits. If a company pays more than it earns, the dividend may need to be reduced. So we need to get a feel for the sustainability of a company’s dividend relative to its after-tax net profit. Looking at the data, we can see that 31% of Direct Finance of Direct Group (2006) profits were paid out as dividends in the past 12 months. This is an average payout level that leaves enough capital in the business to fund any opportunities that may arise, while also rewarding shareholders. One risk is that management will poorly reinvest retained capital instead of paying a higher dividend.
Remember, you can always get an overview of Direct Finance of Direct Group’s (2006) latest financial situation, by checking out our visualization of its financial health.
One of the main risks with dividend income is the potential for a company to struggle financially and reduce its dividend. Not only is your income reduced, but the value of your investment also decreases – unpleasant. With a payment history of less than 2 years, we believe it is a bit too early to consider living off its dividend income. Its most recent annual dividend was 10.6 per share.
It’s good to see modest dividend growth, especially with relatively stable payouts. However, the payment history is relatively short and we wouldn’t want to rely too heavily on this dividend.
Potential for dividend growth
It is important to consider whether the dividend is affordable and stable. However, it is also important to assess whether earnings per share (EPS) is increasing. In the long run, dividends must grow at or above the rate of inflation, in order to maintain the purchasing power of the recipient. It is good to see that Direct Finance of Direct Group (2006) has increased its earnings per share by 13% per year over the past five years. Earnings per share have grown at a good pace and the company pays less than half of its earnings as dividends. We generally think this is an attractive combination, as it allows more reinvestment in the business.
It should also be noted that Direct Finance of Direct Group (2006) issued a significant number of new shares during the past year. Regularly issuing new shares can be detrimental – it is difficult to increase dividends per share when new shares are regularly created.
When we look at a dividend stock, we need to determine whether the dividend will increase, whether the company is able to sustain it under a wide range of economic circumstances, and whether the dividend payout is sustainable. We are happy to see that Direct Finance of Direct Group (2006) has a low payout ratio because it suggests that profits are reinvested in the business. We were also happy to see its earnings increase, although its dividend history is not as long as we would like. Overall, we think Direct Finance by Direct Group (2006) is an attractive dividend-paying stock, although it could be better.
Investors generally tend to favor companies with a consistent and stable dividend policy over those that operate irregularly. However, there are other things for investors to consider when analyzing the performance of stocks. Concrete example: we have spotted 3 warning signs for Direct Finance by Direct Group (2006) (1 of which should not be ignored!) that you should know.
We’ve also compiled a list of global stocks with a market cap of over $ 1 billion and a return of over 3%.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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