Why You Might Be Interested In Dimed S.A. Distribuidora de Medicamentos (BVMF:PNVL3) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dimed S.A. Distribuidora de Medicamentos (BVMF:PNVL3) is about to trade ex-dividend in the next 2 days. 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. 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. Therefore, if you purchase Dimed Distribuidora de Medicamentos' shares on or after the 3rd of October, you won't be eligible to receive the dividend, when it is paid on the 30th of May.

The company's upcoming dividend is R$0.0903805 a share, following on from the last 12 months, when the company distributed a total of R$0.25 per share to shareholders. Based on the last year's worth of payments, Dimed Distribuidora de Medicamentos has a trailing yield of 2.5% on the current stock price of R$10.16. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Dimed Distribuidora de Medicamentos

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Dimed Distribuidora de Medicamentos paying out a modest 32% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 17% of its free cash flow last year.

It's positive to see that Dimed Distribuidora de Medicamentos'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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Dimed Distribuidora de Medicamentos earnings per share are up 2.1% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dimed Distribuidora de Medicamentos has delivered 12% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Dimed Distribuidora de Medicamentos an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Dimed Distribuidora de Medicamentos is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Dimed Distribuidora de Medicamentos is halfway there. Overall we think this is an attractive combination and worthy of further research.

Ever wonder what the future holds for Dimed Distribuidora de Medicamentos? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.