It Might Not Be A Great Idea To Buy Instituto de Diagnóstico S.A. (SNSE:INDISA) For Its Next Dividend

Instituto de Diagnóstico S.A. (SNSE:INDISA) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Instituto de Diagnóstico's shares before the 13th of May in order to be eligible for the dividend, which will be paid on the 17th of May.

The company's next dividend payment will be CL$0.31 per share, and in the last 12 months, the company paid a total of CL$27.80 per share. Calculating the last year's worth of payments shows that Instituto de Diagnóstico has a trailing yield of 1.9% on the current share price of CL$1467.40. If you buy this business for its dividend, you should have an idea of whether Instituto de Diagnóstico's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Instituto de Diagnóstico

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Instituto de Diagnóstico's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. A useful secondary check can be to evaluate whether Instituto de Diagnóstico generated enough free cash flow to afford its dividend. Fortunately, it paid out only 32% of its free cash flow in the past year.

Click here to see how much of its profit Instituto de Diagnóstico paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Instituto de Diagnóstico's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 60% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Instituto de Diagnóstico's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

The Bottom Line

From a dividend perspective, should investors buy or avoid Instituto de Diagnóstico? It's never great to see earnings per share declining, especially when a company is paying out -223% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Instituto de Diagnóstico despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 3 warning signs for Instituto de Diagnóstico (2 can't be ignored) 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.