We Wouldn't Be Too Quick To Buy Deceuninck NV (EBR:DECB) Before It Goes Ex-Dividend

Deceuninck NV (EBR:DECB) stock is about to trade ex-dividend in three 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 Deceuninck's shares on or after the 8th of May, you won't be eligible to receive the dividend, when it is paid on the 10th of May.

The company's upcoming dividend is €0.049 a share, following on from the last 12 months, when the company distributed a total of €0.07 per share to shareholders. Based on the last year's worth of payments, Deceuninck stock has a trailing yield of around 3.1% on the current share price of €2.265. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Deceuninck

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Deceuninck distributed an unsustainably high 162% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Deceuninck fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Deceuninck 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Deceuninck's earnings per share have dropped 14% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Deceuninck has increased its dividend at approximately 15% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Deceuninck is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is Deceuninck an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 162% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Deceuninck's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Deceuninck has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Deceuninck don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 3 warning signs for Deceuninck you should know about.

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.