Valid Soluções S.A. (BVMF:VLID3) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Valid Soluções S.A. (BVMF:VLID3) is about to go ex-dividend in the next 4 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Valid Soluções' shares before the 12th of August to receive the dividend, which will be paid on the 16th of August.

The company's upcoming dividend is R$0.44 a share, following on from the last 12 months, when the company distributed a total of R$1.26 per share to shareholders. Last year's total dividend payments show that Valid Soluções has a trailing yield of 7.4% on the current share price of R$16.98. 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! So we need to investigate whether Valid Soluções can afford its dividend, and if the dividend could grow.

See our latest analysis for Valid Soluções

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. That's why it's good to see Valid Soluções paying out a modest 38% of its earnings. 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. Luckily it paid out just 15% of its free cash flow last year.

It's positive to see that Valid Soluções'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 Valid Soluções 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Valid Soluções's earnings have been skyrocketing, up 22% per annum for the past five years. Valid Soluções is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Valid Soluções has delivered 1.9% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Valid Soluções is keeping back more of its profits to grow the business.

Final Takeaway

From a dividend perspective, should investors buy or avoid Valid Soluções? Valid Soluções has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Valid Soluções, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Valid Soluções is facing. For example, we've found 2 warning signs for Valid Soluções that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com