Companhia Energética do Rio Grande do Norte - COSERN (BVMF:CSRN3) Pays A R$0.14 Dividend In Just Four Days

Readers hoping to buy Companhia Energética do Rio Grande do Norte - COSERN (BVMF:CSRN3) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Companhia Energética do Rio Grande do Norte - COSERN's shares before the 5th of January in order to be eligible for the dividend, which will be paid on the 31st of December.

The company's next dividend payment will be R$0.14 per share, on the back of last year when the company paid a total of R$2.37 to shareholders. Calculating the last year's worth of payments shows that Companhia Energética do Rio Grande do Norte - COSERN has a trailing yield of 8.5% on the current share price of R$27.9. 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.

Check out our latest analysis for Companhia Energética do Rio Grande do Norte - COSERN

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 Energética do Rio Grande do Norte - COSERN paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Companhia Energética do Rio Grande do Norte - COSERN paid out more free cash flow than it generated - 139%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Companhia Energética do Rio Grande do Norte - COSERN's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Companhia Energética do Rio Grande do Norte - COSERN to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Companhia Energética do Rio Grande do Norte - COSERN paid out over the last 12 months.

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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Companhia Energética do Rio Grande do Norte - COSERN's earnings have been skyrocketing, up 28% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Companhia Energética do Rio Grande do Norte - COSERN has increased its dividend at approximately 23% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Companhia Energética do Rio Grande do Norte - COSERN an attractive dividend stock, or better left on the shelf? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Companhia Energética do Rio Grande do Norte - COSERN paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's hard to get excited about Companhia Energética do Rio Grande do Norte - COSERN from a dividend perspective.

If you're not too concerned about Companhia Energética do Rio Grande do Norte - COSERN's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Case in point: We've spotted 2 warning signs for Companhia Energética do Rio Grande do Norte - COSERN you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.