Carlo Gavazzi Holding AG (VTX:GAV) Looks Interesting, And It's About To Pay A Dividend

Carlo Gavazzi Holding AG (VTX:GAV) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Carlo Gavazzi Holding's shares on or after the 2nd of August, you won't be eligible to receive the dividend, when it is paid on the 6th of August.

The company's next dividend payment will be CHF08.00 per share, on the back of last year when the company paid a total of CHF8.00 to shareholders. Based on the last year's worth of payments, Carlo Gavazzi Holding has a trailing yield of 3.0% on the current stock price of CHF0266.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Carlo Gavazzi Holding has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Carlo Gavazzi Holding

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. That's why it's good to see Carlo Gavazzi Holding paying out a modest 30% of its earnings. A useful secondary check can be to evaluate whether Carlo Gavazzi Holding generated enough free cash flow to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past year.

It's positive to see that Carlo Gavazzi Holding'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 how much of its profit Carlo Gavazzi Holding paid out over the last 12 months.

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. For this reason, we're glad to see Carlo Gavazzi Holding's earnings per share have risen 12% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Carlo Gavazzi Holding has seen its dividend decline 4.0% per annum on average over the past 10 years, which is not great to see. Carlo Gavazzi Holding is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Carlo Gavazzi Holding worth buying for its dividend? Carlo Gavazzi Holding 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 Carlo Gavazzi Holding, and we would prioritise taking a closer look at it.

While it's tempting to invest in Carlo Gavazzi Holding for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Carlo Gavazzi Holding that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com