Empresas Lipigas S.A. (SNSE:LIPIGAS) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Empresas Lipigas S.A. (SNSE:LIPIGAS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase Empresas Lipigas' shares before the 23rd of December in order to be eligible for the dividend, which will be paid on the 27th of December.

The company's upcoming dividend is CL$164.00 a share, following on from the last 12 months, when the company distributed a total of CL$273 per share to shareholders. Looking at the last 12 months of distributions, Empresas Lipigas has a trailing yield of approximately 6.5% on its current stock price of CL$4193.80. If you buy this business for its dividend, you should have an idea of whether Empresas Lipigas's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Empresas Lipigas

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Empresas Lipigas has a low and conservative payout ratio of just 17% of its income after tax. 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. Fortunately, it paid out only 41% of its free cash flow in the past year.

It's positive to see that Empresas Lipigas'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 Empresas Lipigas 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. With that in mind, we're encouraged by the steady growth at Empresas Lipigas, with earnings per share up 7.1% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Empresas Lipigas has seen its dividend decline 1.6% per annum on average over the past nine years, which is not great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Empresas Lipigas? Earnings per share growth has been growing somewhat, and Empresas Lipigas is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Empresas Lipigas is halfway there. Empresas Lipigas looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for Empresas Lipigas and you should be aware of them 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.