Is It Smart To Buy Smartfit Escola de Ginástica e Dança S.A. (BVMF:SMFT3) Before It Goes Ex-Dividend?

Smartfit Escola de Ginástica e Dança S.A. (BVMF:SMFT3) is about to trade ex-dividend in the next two days. The ex-dividend date generally occurs two days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Smartfit Escola de Ginástica e Dança's shares before the 15th of September in order to be eligible for the dividend, which will be paid on the 31st of October.

The company's next dividend payment will be R$0.0669739 per share, and in the last 12 months, the company paid a total of R$0.59 per share. Based on the last year's worth of payments, Smartfit Escola de Ginástica e Dança has a trailing yield of 2.4% on the current stock price of R$25.14. 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 Smartfit Escola de Ginástica e Dança can afford its dividend, and if the dividend could grow.

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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. Smartfit Escola de Ginástica e Dança is paying out an acceptable 66% of its profit, a common payout level among most companies. 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. Smartfit Escola de Ginástica e Dança paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

View our latest analysis for Smartfit Escola de Ginástica e Dança

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Smartfit Escola de Ginástica e Dança's earnings have been skyrocketing, up 65% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Smartfit Escola de Ginástica e Dança's dividend payments per share have declined at 8.3% per year on average over the past two years, which is uninspiring. Smartfit Escola de Ginástica e Dança is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Smartfit Escola de Ginástica e Dança got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Smartfit Escola de Ginástica e Dança paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about Smartfit Escola de Ginástica e Dança from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Smartfit Escola de Ginástica e Dança, you should know about the other risks facing this business. Be aware that Smartfit Escola de Ginástica e Dança is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.