Should Income Investors Look At M. Dias Branco S.A. Indústria e Comércio de Alimentos (BVMF:MDIA3) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see M. Dias Branco S.A. Indústria e Comércio de Alimentos (BVMF:MDIA3) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase M. Dias Branco Indústria e Comércio de Alimentos' shares on or after the 21st of November will not receive the dividend, which will be paid on the 28th of November.

The company's next dividend payment will be R$0.03 per share, and in the last 12 months, the company paid a total of R$0.36 per share. Last year's total dividend payments show that M. Dias Branco Indústria e Comércio de Alimentos has a trailing yield of 1.4% on the current share price of R$26.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. M. Dias Branco Indústria e Comércio de Alimentos paid out just 3.0% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 21% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for M. Dias Branco Indústria e Comércio de Alimentos

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 explains why we're not overly excited about M. Dias Branco Indústria e Comércio de Alimentos's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. M. Dias Branco Indústria e Comércio de Alimentos has seen its dividend decline 1.2% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Has M. Dias Branco Indústria e Comércio de Alimentos got what it takes to maintain its dividend payments? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

Ever wonder what the future holds for M. Dias Branco Indústria e Comércio de Alimentos? See what the 10 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.