Empreendimentos Pague Menos S.A. (BVMF:PGMN3) Stock Goes Ex-Dividend In Just Four Days

Empreendimentos Pague Menos S.A. (BVMF:PGMN3) stock is about to trade ex-dividend in four 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Empreendimentos Pague Menos investors that purchase the stock on or after the 21st of January will not receive the dividend, which will be paid on the 27th of February.

The company's next dividend payment will be R$0.2160657 per share, on the back of last year when the company paid a total of R$0.25 to shareholders. Last year's total dividend payments show that Empreendimentos Pague Menos has a trailing yield of 7.4% on the current share price of R$3.43. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Empreendimentos Pague Menos

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. Empreendimentos Pague Menos paid out 104% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Empreendimentos Pague Menos generated enough free cash flow to afford its dividend. Luckily it paid out just 8.9% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Empreendimentos Pague Menos fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Empreendimentos Pague Menos's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, two years ago, Empreendimentos Pague Menos has lifted its dividend by approximately 17% a year on average.

The Bottom Line

Has Empreendimentos Pague Menos got what it takes to maintain its dividend payments? Earnings per share have been flat and, while Empreendimentos Pague Menos paid out just 8.9% of its cashflow, it paid out an uncomfortably high percentage of its profit. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Empreendimentos Pague Menos as a potential investment, you should definitely consider some of the risks involved with Empreendimentos Pague Menos. Every company has risks, and we've spotted 3 warning signs for Empreendimentos Pague Menos (of which 1 is a bit concerning!) you should know about.

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