Don't Race Out To Buy Inversiones Unespa S.A. (SNSE:UNESPA) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Inversiones Unespa S.A. (SNSE:UNESPA) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 11th of January will not receive the dividend, which will be paid on the 14th of January.

Inversiones Unespa's next dividend payment will be CL$4.00 per share, and in the last 12 months, the company paid a total of CL$23.40 per share. Based on the last year's worth of payments, Inversiones Unespa stock has a trailing yield of around 6.1% on the current share price of CLP386. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Inversiones Unespa

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Inversiones Unespa paid out 50% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Inversiones Unespa paid out more free cash flow than it generated - 129%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Inversiones Unespa paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Inversiones Unespa to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Inversiones Unespa paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Inversiones Unespa's 14% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Inversiones Unespa has delivered an average of 1.7% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

From a dividend perspective, should investors buy or avoid Inversiones Unespa? Inversiones Unespa had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Bottom line: Inversiones Unespa has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Inversiones Unespa despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Inversiones Unespa is showing 4 warning signs in our investment analysis, and 2 of those are significant...

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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