Why You Might Be Interested In Compañía Electro Metalúrgica S.A. (SNSE:ELECMETAL) For Its Upcoming Dividend

Readers hoping to buy Compañía Electro Metalúrgica S.A. (SNSE:ELECMETAL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Compañía Electro Metalúrgica's shares on or after the 25th of July, you won't be eligible to receive the dividend, when it is paid on the 30th of July.

The company's upcoming dividend is CL$74.00 a share, following on from the last 12 months, when the company distributed a total of CL$607 per share to shareholders. Based on the last year's worth of payments, Compañía Electro Metalúrgica has a trailing yield of 8.1% on the current stock price of CL$7509.90. 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Compañía Electro Metalúrgica paid out a comfortable 37% of its profit last year. 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. Luckily it paid out just 15% of its free cash flow last year.

It's positive to see that Compañía Electro Metalúrgica'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.

Check out our latest analysis for Compañía Electro Metalúrgica

Click here to see how much of its profit Compañía Electro Metalúrgica 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Compañía Electro Metalúrgica's earnings per share have been growing at 20% 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Compañía Electro Metalúrgica's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Should investors buy Compañía Electro Metalúrgica for the upcoming dividend? Compañía Electro Metalúrgica 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. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Compañía Electro Metalúrgica is facing. For example - Compañía Electro Metalúrgica has 2 warning signs we think you should be aware of.

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.