Sofia Commerce-Pawn Brokerage AD (BUL:SCOM) Passed Our Checks, And It's About To Pay A лв0.10 Dividend

Sofia Commerce-Pawn Brokerage AD (BUL:SCOM) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Sofia Commerce-Pawn Brokerage AD investors that purchase the stock on or after the 21st of March will not receive the dividend, which will be paid on the 30th of April.

The company's upcoming dividend is лв0.10 a share, following on from the last 12 months, when the company distributed a total of лв0.10 per share to shareholders. Based on the last year's worth of payments, Sofia Commerce-Pawn Brokerage AD stock has a trailing yield of around 2.7% on the current share price of лв3.66. 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 Sofia Commerce-Pawn Brokerage AD can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Sofia Commerce-Pawn Brokerage AD

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. Sofia Commerce-Pawn Brokerage AD paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit Sofia Commerce-Pawn Brokerage AD paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Sofia Commerce-Pawn Brokerage AD has grown its earnings rapidly, up 36% a year for the past five years.

Sofia Commerce-Pawn Brokerage AD also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sofia Commerce-Pawn Brokerage AD has seen its dividend decline 11% per annum on average over the past eight years, which is not great to see. 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.

The Bottom Line

Should investors buy Sofia Commerce-Pawn Brokerage AD for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, Sofia Commerce-Pawn Brokerage AD appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

In light of that, while Sofia Commerce-Pawn Brokerage AD has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Sofia Commerce-Pawn Brokerage AD 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.