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

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day 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. Meaning, you will need to purchase BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' shares before the 23rd of October to receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be R$1.5559834 per share. Last year, in total, the company distributed R$1.56 to shareholders. Based on the last year's worth of payments, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has a trailing yield of 6.4% on the current stock price of R$24.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas paid out 68% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out an unsustainably high 281% of its free cash flow as dividends over the past 12 months, which is worrying. 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.

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's ability to maintain its dividend.

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. Readers will understand then, why we're concerned to see BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's earnings per share have dropped 7.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has delivered an average of 31% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Is BrasilAgro - Companhia Brasileira de Propriedades Agrícolas worth buying for its dividend? BrasilAgro - Companhia Brasileira de Propriedades Agrícolas had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not that we think BrasilAgro - Companhia Brasileira de Propriedades Agrícolas is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in BrasilAgro - Companhia Brasileira de Propriedades Agrícolas despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 3 warning signs for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas that we strongly recommend you have a look at before investing in the company.

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.