Aroma AD (BUL:AROM) Could Be A Buy For Its Upcoming Dividend

Aroma AD (BUL:AROM) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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 Aroma AD's shares before the 10th of July in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be лв0.06 per share, and in the last 12 months, the company paid a total of лв0.037 per share. Calculating the last year's worth of payments shows that Aroma AD has a trailing yield of 2.7% on the current share price of лв1.37. 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 Aroma AD has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Aroma AD

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. Aroma AD paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Aroma AD generated enough free cash flow to afford its dividend. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Aroma AD'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.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Aroma AD, with earnings per share up 4.5% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, Aroma AD has lifted its dividend by approximately 2.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Aroma AD got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Aroma AD is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Aroma AD is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Aroma AD has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 4 warning signs we've spotted with Aroma AD (including 2 which can't be ignored).

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.

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