Empresas Lipigas S.A. (SNSE:LIPIGAS) Is About To Go Ex-Dividend, And It Pays A 7.4% Yield

Empresas Lipigas S.A. (SNSE:LIPIGAS) stock is about to trade ex-dividend in 4 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Empresas Lipigas' shares on or after the 28th of March, you won't be eligible to receive the dividend, when it is paid on the 31st of March.

The company's next dividend payment will be CL$45.00 per share, on the back of last year when the company paid a total of CL$221 to shareholders. Calculating the last year's worth of payments shows that Empresas Lipigas has a trailing yield of 7.4% on the current share price of CLP2990. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Empresas Lipigas

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. Empresas Lipigas 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. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Empresas Lipigas's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Empresas Lipigas has seen its dividend decline 5.0% per annum on average over the past seven years, which is not great to see.

The Bottom Line

Is Empresas Lipigas an attractive dividend stock, or better left on the shelf? Earnings per share have barely grown, and although Empresas Lipigas paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Empresas Lipigas's dividend merits.

If you're not too concerned about Empresas Lipigas's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For instance, we've identified 3 warning signs for Empresas Lipigas (1 makes us a bit uncomfortable) you should be aware of.

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

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

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.