Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) Will Pay A R$1.4404 Dividend In Three Days

Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BVMF:SBSP3) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Thus, you can purchase Companhia de Saneamento Básico do Estado de São Paulo - SABESP's shares before the 26th of April in order to receive the dividend, which the company will pay on the 24th of June.

The company's next dividend payment will be R$1.4404 per share, on the back of last year when the company paid a total of R$1.44 to shareholders. Looking at the last 12 months of distributions, Companhia de Saneamento Básico do Estado de São Paulo - SABESP has a trailing yield of approximately 1.7% on its current stock price of R$84.49. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Companhia de Saneamento Básico do Estado de São Paulo - SABESP's payout ratio is modest, at just 28% of profit. 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. Over the past year it paid out 115% of its free cash flow as dividends, which is uncomfortably 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.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Companhia de Saneamento Básico do Estado de São Paulo - SABESP's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Companhia de Saneamento Básico do Estado de São Paulo - SABESP, with earnings per share up 4.4% on average 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Companhia de Saneamento Básico do Estado de São Paulo - SABESP has lifted its dividend by approximately 6.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Companhia de Saneamento Básico do Estado de São Paulo - SABESP got what it takes to maintain its dividend payments? Companhia de Saneamento Básico do Estado de São Paulo - SABESP has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about Companhia de Saneamento Básico do Estado de São Paulo - SABESP's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 1 warning sign for Companhia de Saneamento Básico do Estado de São Paulo - SABESP and you should be aware of this before buying any shares.

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.