Read This Before Considering Tegma Gestão Logística S.A. (BVMF:TGMA3) For Its Upcoming R$0.57 Dividend

It looks like Tegma Gestão Logística S.A. (BVMF:TGMA3) is about to go ex-dividend in the next four 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. Meaning, you will need to purchase Tegma Gestão Logística's shares before the 10th of April to receive the dividend, which will be paid on the 23rd of April.

The company's next dividend payment will be R$0.57 per share, on the back of last year when the company paid a total of R$2.71 to shareholders. Calculating the last year's worth of payments shows that Tegma Gestão Logística has a trailing yield of 7.6% on the current share price of R$33.89. 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! We need to see whether the dividend is covered by earnings and if it's 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. Tegma Gestão Logística paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Tegma Gestão Logística generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (89%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Tegma Gestão Logística'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.

See our latest analysis for Tegma Gestão Logística

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

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Tegma Gestão Logística earnings per share are up 6.8% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tegma Gestão Logística has delivered an average of 42% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Tegma Gestão Logística for the upcoming dividend? Earnings per share have been growing modestly and Tegma Gestão Logística paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about Tegma Gestão Logística from a dividend perspective.

So if you want to do more digging on Tegma Gestão Logística, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 1 warning sign with Tegma Gestão Logística and understanding them should be part of your investment process.

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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.