Compañía Electro Metalúrgica S.A. (SNSE:ELECMETAL) Looks Interesting, And It's About To Pay A Dividend

It looks like Compañía Electro Metalúrgica S.A. (SNSE:ELECMETAL) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Compañía Electro Metalúrgica's shares on or after the 19th of April will not receive the dividend, which will be paid on the 24th of April.

The company's next dividend payment will be CL$210.30 per share, and in the last 12 months, the company paid a total of CL$471 per share. Based on the last year's worth of payments, Compañía Electro Metalúrgica has a trailing yield of 6.7% on the current stock price of CL$7004.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Compañía Electro Metalúrgica

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Compañía Electro Metalúrgica paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 23% of its free cash flow last year.

It's positive to see that Compañía Electro Metalúrgica'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 how much of its profit Compañía Electro Metalúrgica paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Compañía Electro Metalúrgica's earnings per share have risen 14% per annum over the last five years. Compañía Electro Metalúrgica is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. 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. Compañía Electro Metalúrgica's dividend payments per share have declined at 2.4% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Has Compañía Electro Metalúrgica got what it takes to maintain its dividend payments? Compañía Electro Metalúrgica's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Compañía Electro Metalúrgica looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Compañía Electro Metalúrgica is facing. For instance, we've identified 4 warning signs for Compañía Electro Metalúrgica (2 shouldn't be ignored) you should be aware of.

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.