Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Euskaltel, SA (BME: EKT) is about to be ex-dividend in a day or two. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. In other words, investors can buy Euskaltel shares before June 15 in order to be eligible for the dividend which will be paid out on June 17.
The company’s next dividend will be â¬ 0.14 per share, compared to last year when the company paid a total of â¬ 0.31 to shareholders. Last year’s total dividend payments show that Euskaltel has a sliding yield of 2.8% on the current share price of â¬ 11.06. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
See our latest review for Euskaltel
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, the dividend could be unsustainable. Last year Euskaltel paid out 95% of its income as dividends, which is above a level we are comfortable with, especially if the company needs to reinvest in its business. Yet cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. Over the past year, it has paid out 61% of its free cash flow as dividends, within the range typical of most companies.
It’s good to see that while Euskaltel’s dividends weren’t well covered by earnings, they are at least affordable from a cash perspective. However, if the company continues to pay out such a high percentage of its profits, the dividend could be at risk if business goes badly.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. Investors love dividends, so if profits go down and the dividend is reduced, expect a stock to be sold massively at the same time. Thatâs why itâs heartwarming to see that Euskaltelâs revenues have skyrocketed, up 42% annually over the past five years.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Over the past five years, Euskaltel has increased its dividend to around 0.7% per year on average. Earnings per share have grown much faster than dividends, potentially because Euskaltel is withholding more of its earnings to grow the business.
Is Euskaltel an attractive dividend-paying stock, or better left out? Growth in earnings per share and a normal cash flow payout ratio is an acceptable combination, but we are concerned that the company is paying such a high percentage of its income as dividends. In summary, although it has some positive characteristics, we are not inclined to rush and buy Euskaltel today.
However, if you are still interested in Euskaltel as a potential investment, you should definitely take into account some of the risks associated with Euskaltel. For example, Euskaltel has 3 warning signs (and 1 which is potentially serious) we think you should be aware of.
If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.
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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 any of the stocks mentioned.
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