Inversiones Unespa S.A. (SNSE:UNESPA) Goes Ex-Dividend Soon

It looks like Inversiones Unespa S.A. (SNSE:UNESPA) is about to go 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Inversiones Unespa's shares before the 16th of December in order to receive the dividend, which the company will pay on the 19th of December.

The company's upcoming dividend is CL$3.00 a share, following on from the last 12 months, when the company distributed a total of CL$36.89 per share to shareholders. Based on the last year's worth of payments, Inversiones Unespa stock has a trailing yield of around 9.6% on the current share price of CL$386.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Inversiones Unespa has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Inversiones Unespa

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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 102% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Inversiones Unespa 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 Inversiones Unespa's ability to maintain its dividend.

Click here to see how much of its profit Inversiones Unespa 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. For this reason, we're glad to see Inversiones Unespa's earnings per share have risen 12% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Inversiones Unespa has lifted its dividend by approximately 3.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Inversiones Unespa is keeping back more of its profits to grow the business.

Final Takeaway

Should investors buy Inversiones Unespa for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Inversiones Unespa paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, while it has some positive characteristics, we're not inclined to race out and buy Inversiones Unespa today.

If you're not too concerned about Inversiones Unespa's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. We've identified 3 warning signs with Inversiones Unespa (at least 2 which are a bit unpleasant), and understanding these 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.

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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.