GPS Participações e Empreendimentos S.A. (BVMF:GGPS3) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

GPS Participações e Empreendimentos S.A. (BVMF:GGPS3) stock is about to trade ex-dividend in 4 days. The ex-dividend date generally occurs two days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, GPS Participações e Empreendimentos investors that purchase the stock on or after the 11th of April will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be R$0.3249224 per share. Last year, in total, the company distributed R$0.32 to shareholders. Based on the last year's worth of payments, GPS Participações e Empreendimentos stock has a trailing yield of around 2.4% on the current share price of R$13.10. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Fortunately GPS Participações e Empreendimentos's payout ratio is modest, at just 32% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that GPS Participações e Empreendimentos'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.

Check out our latest analysis for GPS Participações e Empreendimentos

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 GPS Participações e Empreendimentos's earnings have been skyrocketing, up 21% per annum for the past five years. GPS Participações e Empreendimentos is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, GPS Participações e Empreendimentos has increased its dividend at approximately 20% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Has GPS Participações e Empreendimentos got what it takes to maintain its dividend payments? GPS Participações e Empreendimentos has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. GPS Participações e Empreendimentos looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while GPS Participações e Empreendimentos looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with GPS Participações e Empreendimentos 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.