Interested In Zona Franca de Iquique's (SNSE:ZOFRI) Upcoming CL$40.20 Dividend? You Have Four Days Left

Zona Franca de Iquique S.A. (SNSE:ZOFRI) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. Accordingly, Zona Franca de Iquique investors that purchase the stock on or after the 27th of May will not receive the dividend, which will be paid on the 31st of May.

The company's upcoming dividend is CL$40.20 a share, following on from the last 12 months, when the company distributed a total of CL$80.40 per share to shareholders. Looking at the last 12 months of distributions, Zona Franca de Iquique has a trailing yield of approximately 9.8% on its current stock price of CL$818.28. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Zona Franca de Iquique

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Zona Franca de Iquique paid out a comfortable 46% 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. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Zona Franca de Iquique's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Zona Franca de Iquique 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. This is why it's a relief to see Zona Franca de Iquique earnings per share are up 2.6% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zona Franca de Iquique has delivered 7.2% 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.

To Sum It Up

Is Zona Franca de Iquique an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Zona Franca de Iquique paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, Zona Franca de Iquique looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for Zona Franca de Iquique and you should be aware of them before buying any shares.

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.