Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Prosegur Cash, S.A. (BME:CASH) is about to go ex-dividend in just 1 days. Ex-dividend means that investors that purchase the stock on or after the 23rd of December will not receive this dividend, which will be paid on the 27th of December.
Prosegur Cash’s upcoming dividend is €0.012 a share, following on from the last 12 months, when the company distributed a total of €0.079 per share to shareholders. Based on the last year’s worth of payments, Prosegur Cash has a trailing yield of 5.7% on the current stock price of €1.388. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether Prosegur Cash has been able to grow its dividends, or if the dividend might be cut.
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. Prosegur Cash paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Prosegur Cash generated enough free cash flow to afford its dividend. Prosegur Cash paid out more free cash flow than it generated – 123%, to be precise – last year, which we think is concerningly high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Prosegur Cash paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Prosegur Cash’s ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re discomforted by Prosegur Cash’s 17% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Prosegur Cash has increased its dividend at approximately 4.8% a year on average. That’s interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company’s profits. This can be valuable for shareholders, but it can’t go on forever.
Should investors buy Prosegur Cash for the upcoming dividend? It’s definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.
Wondering what the future holds for Prosegur Cash? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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