Fagron NV (EBR:FAGR) stock is about to trade ex-dividend in couple of days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. Accordingly, Fagron investors that purchase the stock on or after the 16th of May will not receive the dividend, which will be paid on the 18th of May.
The company's upcoming dividend is €0.14 a share, following on from the last 12 months, when the company distributed a total of €0.20 per share to shareholders. Calculating the last year's worth of payments shows that Fagron has a trailing yield of 1.2% on the current share price of €16.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Fagron can afford its dividend, and if the dividend could grow.
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. Fagron paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.
It's positive to see that Fagron'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.
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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Fagron has grown its earnings rapidly, up 30% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Fagron looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fagron has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. Fagron is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
Has Fagron got what it takes to maintain its dividend payments? Fagron has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Fagron, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Fagron is facing. Case in point: We've spotted 1 warning sign for Fagron you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.