Why It Might Not Make Sense To Buy Elhim-Iskra JSC (BUL:ELHM) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Elhim-Iskra JSC (BUL:ELHM) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Elhim-Iskra JSC's shares before the 30th of May in order to be eligible for the dividend, which will be paid on the 7th of July.

The company's next dividend payment will be лв0.013 per share, and in the last 12 months, the company paid a total of лв0.026 per share. Based on the last year's worth of payments, Elhim-Iskra JSC has a trailing yield of 3.7% on the current stock price of BGN0.7. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Elhim-Iskra JSC

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Elhim-Iskra JSC's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Elhim-Iskra JSC didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term.

Click here to see how much of its profit Elhim-Iskra JSC 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. Elhim-Iskra JSC was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Elhim-Iskra JSC has lifted its dividend by approximately 2.1% a year on average.

We update our analysis on Elhim-Iskra JSC every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is Elhim-Iskra JSC an attractive dividend stock, or better left on the shelf? It's hard to get used to Elhim-Iskra JSC paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Elhim-Iskra JSC.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Elhim-Iskra JSC. In terms of investment risks, we've identified 3 warning signs with Elhim-Iskra JSC and understanding them should be part of your investment process.

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.