Is It Worth Considering Aguas Andinas S.A. (SNSE:AGUAS-A) For Its Upcoming Dividend?

Readers hoping to buy Aguas Andinas S.A. (SNSE:AGUAS-A) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Aguas Andinas investors that purchase the stock on or after the 27th of November will not receive the dividend, which will be paid on the 2nd of December.

The company's upcoming dividend is CL$6.86391 a share, following on from the last 12 months, when the company distributed a total of CL$14.22 per share to shareholders. Looking at the last 12 months of distributions, Aguas Andinas has a trailing yield of approximately 3.9% on its current stock price of CL$363.99. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Aguas Andinas paid out a comfortable 37% of its profit last year. 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. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Aguas Andinas'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.

Check out our latest analysis for Aguas Andinas

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

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. That's why it's not ideal to see Aguas Andinas's earnings per share have been shrinking at 2.1% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Aguas Andinas's dividend payments per share have declined at 3.1% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

From a dividend perspective, should investors buy or avoid Aguas Andinas? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that being said, if dividends aren't your biggest concern with Aguas Andinas, you should know about the other risks facing this business. Every company has risks, and we've spotted 2 warning signs for Aguas Andinas 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.