Here's Why We're Wary Of Buying Groupe Minoteries' (VTX:GMI) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Groupe Minoteries SA (VTX:GMI) is about to go ex-dividend in just three days. The ex-dividend date generally occurs two days 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. This means that investors who purchase Groupe Minoteries' shares on or after the 22nd of May will not receive the dividend, which will be paid on the 26th of May.

The company's next dividend payment will be CHF011.00 per share, and in the last 12 months, the company paid a total of CHF11.00 per share. Last year's total dividend payments show that Groupe Minoteries has a trailing yield of 4.3% on the current share price of CHF0256.00. If you buy this business for its dividend, you should have an idea of whether Groupe Minoteries's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Groupe Minoteries paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Groupe Minoteries generated enough free cash flow to afford its dividend. Over the past year it paid out 199% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Groupe Minoteries does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Groupe Minoteries'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. Were this to happen repeatedly, this would be a risk to Groupe Minoteries's ability to maintain its dividend.

See our latest analysis for Groupe Minoteries

Click here to see how much of its profit Groupe Minoteries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Groupe Minoteries's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Groupe Minoteries has increased its dividend at approximately 8.2% a year on average.

To Sum It Up

Should investors buy Groupe Minoteries for the upcoming dividend? Earnings per share have not grown and Groupe Minoteries's profit payout ratio looks reasonable. However, it paid out a disconcertingly high percentage of its cashflow, which is a worry. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Groupe Minoteries.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Groupe Minoteries. To help with this, we've discovered 1 warning sign for Groupe Minoteries that you should be aware of before investing in their shares.

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.