Dividend Investors: Don't Be Too Quick To Buy BG Agro AD (BUL:BGAG) 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 BG Agro AD (BUL:BGAG) is about to trade ex-dividend in the next three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase BG Agro AD's shares on or after the 6th of July will not receive the dividend, which will be paid on the 14th of July.

The company's next dividend payment will be лв0.08 per share, and in the last 12 months, the company paid a total of лв0.08 per share. Last year's total dividend payments show that BG Agro AD has a trailing yield of 6.4% on the current share price of BGN1.25. 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 BG Agro AD has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for BG Agro AD

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. BG Agro AD distributed an unsustainably high 170% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether BG Agro AD generated enough free cash flow to afford its dividend. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while BG Agro AD's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit BG Agro AD paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by BG Agro AD's 13% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, BG Agro AD has increased its dividend at approximately 1.7% a year on average.

The Bottom Line

Is BG Agro AD an attractive dividend stock, or better left on the shelf? Earnings per share have been shrinking in recent times. Worse, BG Agro AD's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. It's not that we think BG Agro AD is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of BG Agro AD don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 4 warning signs for BG Agro AD you should be aware of.

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.