Should Income Investors Look At Empresas Lipigas S.A. (SNSE:LIPIGAS) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Empresas Lipigas S.A. (SNSE:LIPIGAS) is about to trade ex-dividend in the next four days. This means that investors who purchase shares on or after the 16th of December will not receive the dividend, which will be paid on the 21st of December.

Empresas Lipigas's upcoming dividend is CL$50.00 a share, following on from the last 12 months, when the company distributed a total of CL$281 per share to shareholders. Calculating the last year's worth of payments shows that Empresas Lipigas has a trailing yield of 7.0% on the current share price of CLP3993.2. 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! So we need to check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see Empresas Lipigas paying out a modest 28% of its earnings. A useful secondary check can be to evaluate whether Empresas Lipigas generated enough free cash flow to afford its dividend. Dividends consumed 53% 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Empresas Lipigas, with earnings per share up 7.7% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

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 3.0% per annum on average over the past four years, which is not great to see. Empresas Lipigas is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Empresas Lipigas worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Empresas Lipigas is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy Empresas Lipigas today.

On that note, you'll want to research what risks Empresas Lipigas is facing. In terms of investment risks, we've identified 2 warning signs with Empresas Lipigas and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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