Dividend Investors: Don't Be Too Quick To Buy Ânima Holding S.A. (BVMF:ANIM3) 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 Ânima Holding S.A. (BVMF:ANIM3) is about to trade ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, 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 Ânima Holding's shares on or after the 25th of April, you won't be eligible to receive the dividend, when it is paid on the 9th of May.

The company's next dividend payment will be R$0.0535396 per share, and in the last 12 months, the company paid a total of R$0.054 per share. Based on the last year's worth of payments, Ânima Holding stock has a trailing yield of around 1.7% on the current share price of R$3.10. If you buy this business for its dividend, you should have an idea of whether Ânima Holding's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ânima Holding lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.

View our latest analysis for Ânima Holding

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Ânima Holding's 14% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ânima Holding has seen its dividend decline 10% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ânima Holding? Earnings per share have been shrinking in recent times. Worse, Ânima Holding's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. Bottom line: Ânima Holding has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Ânima Holding despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 2 warning signs for Ânima Holding you should be aware of.

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.