Iochpe-Maxion S.A. (BVMF:MYPK3) Passed Our Checks, And It's About To Pay A R$0.20 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Iochpe-Maxion S.A. (BVMF:MYPK3) is about to trade ex-dividend in the next day or two. 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. 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. In other words, investors can purchase Iochpe-Maxion's shares before the 4th of October in order to be eligible for the dividend, which will be paid on the 31st of March.

The company's upcoming dividend is R$0.20 a share, following on from the last 12 months, when the company distributed a total of R$0.47 per share to shareholders. Based on the last year's worth of payments, Iochpe-Maxion has a trailing yield of 3.7% on the current stock price of R$12.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Iochpe-Maxion

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. Iochpe-Maxion is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Iochpe-Maxion generated enough free cash flow to afford its dividend. Iochpe-Maxion paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Iochpe-Maxion's earnings have been skyrocketing, up 78% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Iochpe-Maxion has seen its dividend decline 6.5% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

From a dividend perspective, should investors buy or avoid Iochpe-Maxion? We like that Iochpe-Maxion has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in Iochpe-Maxion for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for Iochpe-Maxion (1 can't be ignored) 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.