Dividend investors: don’t be too quick to buy Pirelli and CSpA (BIT: PIRC) for its next dividend


Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Pirelli & CSpA (BIT: PIRC) is set to trade ex-dividend within the next 4 days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for a dividend payment. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. Thus, you can buy Pirelli & C shares before June 21 in order to receive the dividend that the company will pay on June 23.

The company’s next dividend will be € 0.08 per share. Last year, in total, the company distributed € 0.08 to shareholders. Last year’s total dividend payments show Pirelli & C has a rolling 1.6% return on the current share price of € 5.122. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! It is necessary to see if the dividend is covered by the profits and if it increases.

Check out our latest analysis for Pirelli & C

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. An unusually high payout ratio of 253% of its profits suggests that something else is happening than the usual distribution of profits to shareholders.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

BIT: PIRC Historical Dividend June 16, 2021

Have profits and dividends increased?

Companies with declining profits are tricky from a dividend standpoint. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Pirelli & C’s earnings per share have fallen by around 53% per year over the past five years.

Many investors will assess a company’s dividend performance by evaluating how much dividend payments have changed over time. Pirelli & C’s dividend payouts per share have declined by 33% per year on average over the past two years, which is not inspiring. It’s never nice to see profits and dividends go down, but at least management has reduced the dividend rather than potentially risking the health of the company in an attempt to maintain it.

To summarize

Is Pirelli & C worth buying out for its dividend? Not only is earnings per share going down, but Pirelli & C pays a surprisingly high percentage of its earnings as dividends. In general, we believe dividend investors should avoid companies in this situation, as high payout ratios and falling profits can lead to a reduction in the dividend. It’s not an overtly appealing combination of features, and we just aren’t interested in the dividend for this company.

Having said that, if you watch this stock without worrying too much about the dividend, you should still be familiar with the risks associated with Pirelli & C. For example, Pirelli & C has 4 warning signs (and 1 which is potentially serious) we think you should be aware of.

However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend stocks with a yield above 2% and a dividend coming soon.

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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 material. Simply Wall St has no position in any of the stocks mentioned.
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