Cambuci (BVMF:CAMB3) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy Cambuci S.A. (BVMF:CAMB3) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Cambuci's shares before the 12th of June to receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be R$0.0270872 per share. Last year, in total, the company distributed R$0.32 to shareholders. Last year's total dividend payments show that Cambuci has a trailing yield of 3.1% on the current share price of R$10.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Cambuci

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Cambuci has a low and conservative payout ratio of just 15% of its income after tax. A useful secondary check can be to evaluate whether Cambuci generated enough free cash flow to afford its dividend. Luckily it paid out just 7.8% of its free cash flow last year.

It's positive to see that Cambuci'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 Cambuci 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. It's encouraging to see Cambuci has grown its earnings rapidly, up 32% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Cambuci looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cambuci has delivered an average of 49% per year annual increase in its dividend, based on the past two years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Cambuci for the upcoming dividend? Cambuci 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. There's a lot to like about Cambuci, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Cambuci is facing. Case in point: We've spotted 2 warning signs for Cambuci 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.