Don't Race Out To Buy Neogrid Participações S.A. (BVMF:NGRD3) Just Because It's Going Ex-Dividend

Neogrid Participações S.A. (BVMF:NGRD3) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Neogrid Participações' shares on or after the 19th of April will not receive the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be R$0.0054308 per share. Last year, in total, the company distributed R$0.015 to shareholders. Based on the last year's worth of payments, Neogrid Participações stock has a trailing yield of around 1.4% on the current share price of R$1.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Neogrid Participações

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. Neogrid Participações paid out a comfortable 38% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution.

Click here to see how much of its profit Neogrid Participações paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Neogrid Participações's earnings per share have plummeted approximately 30% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Neogrid Participações has delivered 6.0% dividend growth per year on average over the past three years.

The Bottom Line

Is Neogrid Participações an attractive dividend stock, or better left on the shelf? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Neogrid Participações is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Neogrid Participações.

Although, if you're still interested in Neogrid Participações and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 4 warning signs for Neogrid Participações (1 is significant) 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.