Why You Might Be Interested In Companhia de Saneamento de Minas Gerais (BVMF:CSMG3) For Its Upcoming Dividend

Readers hoping to buy Companhia de Saneamento de Minas Gerais (BVMF:CSMG3) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 3rd of March in order to receive the dividend, which the company will pay on the 31st of December.

Companhia de Saneamento de Minas Gerais's upcoming dividend is R$0.20 a share, following on from the last 12 months, when the company distributed a total of R$0.56 per share to shareholders. Based on the last year's worth of payments, Companhia de Saneamento de Minas Gerais stock has a trailing yield of around 3.8% on the current share price of R$14.43. 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 investigate whether Companhia de Saneamento de Minas Gerais can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Companhia de Saneamento de Minas Gerais

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. Companhia de Saneamento de Minas Gerais paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 8.4% of its free cash flow in the last year.

It's positive to see that Companhia de Saneamento de Minas Gerais'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 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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Companhia de Saneamento de Minas Gerais's earnings per share have been growing at 19% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Companhia de Saneamento de Minas Gerais has delivered 1.1% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Should investors buy Companhia de Saneamento de Minas Gerais for the upcoming dividend? Companhia de Saneamento de Minas Gerais 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. There's a lot to like about Companhia de Saneamento de Minas Gerais, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Companhia de Saneamento de Minas Gerais is facing. Case in point: We've spotted 2 warning signs for Companhia de Saneamento de Minas Gerais you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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