Empresas Lipigas (SNSE:LIPIGAS) Could Be A Buy For Its Upcoming Dividend

It looks like Empresas Lipigas S.A. (SNSE:LIPIGAS) is about to go ex-dividend in the next three 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. Accordingly, Empresas Lipigas investors that purchase the stock on or after the 25th of September will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be CL$97.00 per share, and in the last 12 months, the company paid a total of CL$273 per share. Looking at the last 12 months of distributions, Empresas Lipigas has a trailing yield of approximately 7.5% on its current stock price of CL$3662.30. 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

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 Empresas Lipigas paying out a modest 34% of its earnings. 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. Fortunately, it paid out only 36% of its free cash flow in the past year.

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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Empresas Lipigas, with earnings per share up 4.9% on average over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Empresas Lipigas's dividend payments per share have declined at 1.6% per year on average over the past nine years, which is uninspiring.

The Bottom Line

Should investors buy Empresas Lipigas for the upcoming dividend? 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. There's a lot to like about Empresas Lipigas, and we would prioritise taking a closer look at it.

In light of that, while Empresas Lipigas has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Empresas Lipigas and understanding them should be part of your investment process.

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.