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

Profarma Distribuidora de Produtos Farmacêuticos S.A. (BVMF:PFRM3) stock is about to trade ex-dividend in four 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Profarma Distribuidora de Produtos Farmacêuticos' shares on or after the 2nd of January will not receive the dividend, which will be paid on the 10th of January.

The company's next dividend payment will be R$0.23 per share, which looks like a nice increase on last year, when the company distributed a total of R$0.12 to shareholders. 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 investigate whether Profarma Distribuidora de Produtos Farmacêuticos can afford its dividend, and if the dividend could grow.

Check out 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. That's why it's good to see Profarma Distribuidora de Produtos Farmacêuticos paying out a modest 46% of its earnings. 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. Luckily it paid out just 6.0% 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.

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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Profarma Distribuidora de Produtos Farmacêuticos's earnings have been skyrocketing, up 43% 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. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Profarma Distribuidora de Produtos Farmacêuticos has seen its dividend decline 5.3% per annum on average over the past 10 years, which is not great to see. Profarma Distribuidora de Produtos Farmacêuticos 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.

Final Takeaway

Is Profarma Distribuidora de Produtos Farmacêuticos worth buying for its dividend? Profarma Distribuidora de Produtos Farmacêuticos has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Profarma Distribuidora de Produtos Farmacêuticos is facing. Case in point: We've spotted 4 warning signs for Profarma Distribuidora de Produtos Farmacêuticos you should be aware of.

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.