Just Three Days Till Zona Franca de Iquique S.A. (SNSE:ZOFRI) Will Be Trading Ex-Dividend

Zona Franca de Iquique S.A. (SNSE:ZOFRI) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Zona Franca de Iquique's shares before the 24th of November to receive the dividend, which will be paid on the 28th of November.

The company's upcoming dividend is CL$33.56 a share, following on from the last 12 months, when the company distributed a total of CL$67.12 per share to shareholders. Based on the last year's worth of payments, Zona Franca de Iquique has a trailing yield of 6.3% on the current stock price of CL$1070.00. If you buy this business for its dividend, you should have an idea of whether Zona Franca de Iquique's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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 35% 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. It paid out an unsustainably high 356% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Zona Franca de Iquique does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Zona Franca de Iquique 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 Zona Franca de Iquique's ability to maintain its dividend.

See our latest analysis for Zona Franca de Iquique

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Zona Franca de Iquique's earnings per share have been growing at 12% a year for the past 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. Zona Franca de Iquique has delivered an average of 6.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Zona Franca de Iquique an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, Zona Franca de Iquique looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Zona Franca de Iquique for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Zona Franca de Iquique (of which 1 is a bit concerning!) you should know about.

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.