Profarma Distribuidora de Produtos Farmacêuticos (BVMF:PFRM3) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Profarma Distribuidora de Produtos Farmacêuticos S.A. (BVMF:PFRM3) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Profarma Distribuidora de Produtos Farmacêuticos' shares before the 2nd of December in order to be eligible for the dividend, which will be paid on the 12th of December.

The company's next dividend payment will be R$0.1230521 per share, on the back of last year when the company paid a total of R$0.57 to shareholders. Last year's total dividend payments show that Profarma Distribuidora de Produtos Farmacêuticos has a trailing yield of 8.1% on the current share price of R$7.07. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Profarma Distribuidora de Produtos Farmacêuticos

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Profarma Distribuidora de Produtos Farmacêuticos paid out a comfortable 44% of its profit last year. 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Profarma Distribuidora de Produtos Farmacêuticos has grown its earnings rapidly, up 22% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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.

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 delivered 16% dividend growth per year on average over the past 10 years. 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

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. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Profarma Distribuidora de Produtos Farmacêuticos for the dividends alone, you should always be mindful of the risks involved. 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.