We Wouldn't Be Too Quick To Buy Soquimich Comercial S.A. (SNSE:SOQUICOM) Before It Goes Ex-Dividend

It looks like Soquimich Comercial S.A. (SNSE:SOQUICOM) is about to go ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Soquimich Comercial's shares before the 5th of May in order to receive the dividend, which the company will pay on the 9th of May.

The company's next dividend payment will be US$0.03233 per share. Last year, in total, the company distributed US$0.036 to shareholders. Based on the last year's worth of payments, Soquimich Comercial stock has a trailing yield of around 8.9% on the current share price of CL$384.96. 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! As a result, readers should always check whether Soquimich Comercial has been able to grow its dividends, or if the dividend might be cut.

Our free stock report includes 1 warning sign investors should be aware of before investing in Soquimich Comercial. Read for free now.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Soquimich Comercial distributed an unsustainably high 110% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 92% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

As Soquimich Comercial's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

See our latest analysis for Soquimich Comercial

Click here to see how much of its profit Soquimich Comercial 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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Soquimich Comercial's earnings per share have been growing at 12% a year for the past five years. It's not encouraging to see Soquimich Comercial paying out basically all of its earnings and cashflow to shareholders. We're glad that earnings are growing rapidly, but we're wary of the company stretching itself financially.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Soquimich Comercial has delivered 6.6% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Soquimich Comercial an attractive dividend stock, or better left on the shelf? While it's nice to see earnings per share growing, we're curious about how Soquimich Comercial intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Bottom line: Soquimich Comercial has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Soquimich Comercial as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 1 warning sign with Soquimich Comercial and understanding them should be part of your investment process.

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.