Should Income Investors Look At Empresas Lipigas S.A. (SNSE:LIPIGAS) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Empresas Lipigas S.A. (SNSE:LIPIGAS) 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. 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. Therefore, if you purchase Empresas Lipigas' shares on or after the 22nd of April, you won't be eligible to receive the dividend, when it is paid on the 25th of April.

The company's upcoming dividend is CL$42.00 a share, following on from the last 12 months, when the company distributed a total of CL$231 per share to shareholders. Based on the last year's worth of payments, Empresas Lipigas stock has a trailing yield of around 6.2% on the current share price of CL$3711.90. 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 investigate whether Empresas Lipigas can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Empresas Lipigas

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Empresas Lipigas is paying out an acceptable 69% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Empresas Lipigas generated enough free cash flow to afford its dividend. Fortunately, it paid out only 31% of its free cash flow in the past year.

It's positive to see that Empresas Lipigas'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 Empresas Lipigas paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Empresas Lipigas's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Empresas Lipigas has seen its dividend decline 3.9% per annum on average over the past eight years, which is not great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Empresas Lipigas? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Empresas Lipigas doesn't stand out from a dividend perspective. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about Empresas Lipigas's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. We've identified 3 warning signs with Empresas Lipigas (at least 1 which is concerning), and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.