Why It Might Not Make Sense To Buy BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) For Its Upcoming Dividend

It looks like BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) is about to go ex-dividend in the next 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' shares on or after the 23rd of October, you won't be eligible to receive the dividend, when it is paid on the 1st of January.

The company's upcoming dividend is R$0.7528952 a share, following on from the last 12 months, when the company distributed a total of R$0.75 per share to shareholders. Calculating the last year's worth of payments shows that BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has a trailing yield of 3.7% on the current share price of R$20.08. 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.

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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. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas is paying out an acceptable 54% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 263% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's ability to maintain its dividend.

See our latest analysis for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's 8.1% 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. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has seen its dividend decline 6.0% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Is BrasilAgro - Companhia Brasileira de Propriedades Agrícolas worth buying for its dividend? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of BrasilAgro - Companhia Brasileira de Propriedades Agrícolas don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 3 warning signs for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas you should know about.

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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.