Vulcabras S.A. (BVMF:VULC3) Pays A R$0.125 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Vulcabras S.A. (BVMF:VULC3) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day 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. 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. This means that investors who purchase Vulcabras' shares on or after the 17th of December will not receive the dividend, which will be paid on the 2nd of January.

The company's next dividend payment will be R$0.125 per share. Last year, in total, the company distributed R$1.50 to shareholders. Last year's total dividend payments show that Vulcabras has a trailing yield of 9.2% on the current share price of R$16.26. 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 Vulcabras can afford its dividend, and if the dividend could grow.

View our latest analysis for Vulcabras

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. Vulcabras paid out 134% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Vulcabras paid out more free cash flow than it generated - 174%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

As Vulcabras's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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

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 Vulcabras has grown its earnings rapidly, up 26% a year for the past five years. Earnings per share have been growing rapidly, but the company is paying out a dividend that looks unsustainably high. Companies that pay out more than they earned while growing rapidly, can find themselves short of cash in a few years when growth slows.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Vulcabras has delivered 62% dividend growth per year on average over the past three years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Vulcabras? While it's nice to see earnings per share growing, we're curious about how Vulcabras intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. It's not that we think Vulcabras is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Vulcabras as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for Vulcabras that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.