Two Days Left Until Vittia S.A. (BVMF:VITT3) Trades Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Vittia S.A. (BVMF:VITT3) is about to go ex-dividend in just 2 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Vittia's shares on or after the 21st of July will not receive the dividend, which will be paid on the 31st of December.

The company's next dividend payment will be R$0.1404013 per share, on the back of last year when the company paid a total of R$0.16 to shareholders. Last year's total dividend payments show that Vittia has a trailing yield of 3.2% on the current share price of R$5.18. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Vittia's payout ratio is modest, at just 34% 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. Over the past year it paid out 195% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Vittia paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Vittia to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Vittia

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Vittia earnings per share are up 3.9% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vittia has seen its dividend decline 7.3% per annum on average over the past three years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Should investors buy Vittia for the upcoming dividend? Vittia delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 195% of its cash flow over the last year, which is a mediocre outcome. In summary, while it has some positive characteristics, we're not inclined to race out and buy Vittia today.

If you're not too concerned about Vittia's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example - Vittia has 1 warning sign we think 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.