We Wouldn't Be Too Quick To Buy Compañía Industrial El Volcán S.A. (SNSE:VOLCAN) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Compañía Industrial El Volcán S.A. (SNSE:VOLCAN) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. In other words, investors can purchase Compañía Industrial El Volcán's shares before the 6th of September in order to be eligible for the dividend, which will be paid on the 11th of September.

The company's next dividend payment will be CL$25.00 per share. Last year, in total, the company distributed CL$90.00 to shareholders. Based on the last year's worth of payments, Compañía Industrial El Volcán has a trailing yield of 3.6% on the current stock price of CL$2500.00. If you buy this business for its dividend, you should have an idea of whether Compañía Industrial El Volcán'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 Compañía Industrial El Volcán

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. Compañía Industrial El Volcán paid out a comfortable 29% of its profit last year. 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. Compañía Industrial El Volcán paid out more free cash flow than it generated - 117%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Compañía Industrial El Volcán paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Compañía Industrial El Volcán's ability to maintain its dividend.

Click here to see how much of its profit Compañía Industrial El Volcán paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Compañía Industrial El Volcán's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Compañía Industrial El Volcán's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Should investors buy Compañía Industrial El Volcán for the upcoming dividend? It's disappointing to see earnings per share have fallen slightly, even though Compañía Industrial El Volcán is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Compañía Industrial El Volcán as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for Compañía Industrial El Volcán that we recommend you consider before investing in the business.

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.