Only Four Days Left To Cash In On Empresa Nacional de Telecomunicaciones' (SNSE:ENTEL) Dividend

Readers hoping to buy Empresa Nacional de Telecomunicaciones S.A. (SNSE:ENTEL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Empresa Nacional de Telecomunicaciones' shares on or after the 25th of April, you won't be eligible to receive the dividend, when it is paid on the 28th of April.

The upcoming dividend for Empresa Nacional de Telecomunicaciones is CL$200 per share, increased from last year's total dividends per share of CL$139. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Empresa Nacional de Telecomunicaciones

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. Empresa Nacional de Telecomunicaciones is paying out an acceptable 56% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Empresa Nacional de Telecomunicaciones generated enough free cash flow to afford its dividend. Over the past year it paid out 146% of its free cash flow as dividends, which is uncomfortably 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.

While Empresa Nacional de Telecomunicaciones's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Empresa Nacional de Telecomunicaciones to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Empresa Nacional de Telecomunicaciones's earnings per share have risen 14% 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Empresa Nacional de Telecomunicaciones has seen its dividend decline 13% per annum on average over the past 10 years, which is not great to see. Empresa Nacional de Telecomunicaciones is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid Empresa Nacional de Telecomunicaciones? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Empresa Nacional de Telecomunicaciones paid out a much higher percentage of its free cash flow, which makes us uncomfortable. All things considered, we are not particularly enthused about Empresa Nacional de Telecomunicaciones from a dividend perspective.

If you're not too concerned about Empresa Nacional de Telecomunicaciones's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 2 warning signs for Empresa Nacional de Telecomunicaciones you should know about.

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.