Allied Tecnologia (BVMF:ALLD3) Could Be A Buy For Its Upcoming Dividend

It looks like Allied Tecnologia S.A. (BVMF:ALLD3) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Allied Tecnologia's shares before the 16th of April to receive the dividend, which will be paid on the 31st of July.

The company's next dividend payment will be R$1.0727244 per share, on the back of last year when the company paid a total of R$0.97 to shareholders. Based on the last year's worth of payments, Allied Tecnologia stock has a trailing yield of around 9.9% on the current share price of R$9.72. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Allied Tecnologia

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Allied Tecnologia is paying out an acceptable 74% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 1.6% of its free cash flow in the last year.

It's positive to see that Allied Tecnologia's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Allied Tecnologia's earnings per share have risen 11% per annum over the last five years. Allied Tecnologia has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, three years ago, Allied Tecnologia has lifted its dividend by approximately 1.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Allied Tecnologia is keeping back more of its profits to grow the business.

Final Takeaway

Is Allied Tecnologia worth buying for its dividend? We like Allied Tecnologia's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Allied Tecnologia for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Allied Tecnologia and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.