Be Sure To Check Out Profarma Distribuidora de Produtos Farmacêuticos S.A. (BVMF:PFRM3) Before It Goes Ex-Dividend

It looks like Profarma Distribuidora de Produtos Farmacêuticos S.A. (BVMF:PFRM3) is about to go ex-dividend in the next 3 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Profarma Distribuidora de Produtos Farmacêuticos' shares before the 2nd of January to receive the dividend, which will be paid on the 15th of January.

The company's next dividend payment will be R$0.2426381 per share, on the back of last year when the company paid a total of R$0.57 to shareholders. Calculating the last year's worth of payments shows that Profarma Distribuidora de Produtos Farmacêuticos has a trailing yield of 9.2% on the current share price of R$6.28. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Profarma Distribuidora de Produtos Farmacêuticos

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. Fortunately Profarma Distribuidora de Produtos Farmacêuticos's payout ratio is modest, at just 44% of profit. 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. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Profarma Distribuidora de Produtos Farmacêuticos's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Profarma Distribuidora de Produtos Farmacêuticos paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Profarma Distribuidora de Produtos Farmacêuticos's earnings have been skyrocketing, up 22% per annum for the past five years. Profarma Distribuidora de Produtos Farmacêuticos is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Profarma Distribuidora de Produtos Farmacêuticos has lifted its dividend by approximately 16% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Should investors buy Profarma Distribuidora de Produtos Farmacêuticos for the upcoming dividend? It's great that Profarma Distribuidora de Produtos Farmacêuticos is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

So while Profarma Distribuidora de Produtos Farmacêuticos looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Profarma Distribuidora de Produtos Farmacêuticos and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.