Two Days Left Until Indústrias Romi S.A. (BVMF:ROMI3) Trades Ex-Dividend

Indústrias Romi S.A. (BVMF:ROMI3) stock is about to trade ex-dividend in 2 days. Investors can purchase shares before the 23rd of March in order to be eligible for this dividend, which will be paid on the 28th of April.

Indústrias Romi's upcoming dividend is R$0.13 a share, following on from the last 12 months, when the company distributed a total of R$0.96 per share to shareholders. Based on the last year's worth of payments, Indústrias Romi stock has a trailing yield of around 3.7% on the current share price of R$26.05. If you buy this business for its dividend, you should have an idea of whether Indústrias Romi's dividend is reliable and sustainable. So we need to investigate whether Indústrias Romi can afford its dividend, and if the dividend could grow.

See our latest analysis for Indústrias Romi

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Indústrias Romi is paying out just 8.0% 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 Indústrias Romi generated enough free cash flow to afford its dividend. The company paid out 91% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

While Indústrias Romi's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Indústrias Romi's ability to maintain its dividend.

Click here to see how much of its profit Indústrias Romi 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Indústrias Romi has grown its earnings rapidly, up 103% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Indústrias Romi has lifted its dividend by approximately 8.8% 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

From a dividend perspective, should investors buy or avoid Indústrias Romi? We like that Indústrias Romi 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. To summarise, Indústrias Romi looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 4 warning signs for Indústrias Romi you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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