Stock Analysis

Why It Might Not Make Sense To Buy Aguas Andinas S.A. (SNSE:AGUAS-A) For Its Upcoming Dividend

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SNSE:AGUAS-A
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Aguas Andinas S.A. (SNSE:AGUAS-A) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day 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. Therefore, if you purchase Aguas Andinas' shares on or after the 11th of December, you won't be eligible to receive the dividend, when it is paid on the 15th of December.

The company's next dividend payment will be CL$6.54 per share, and in the last 12 months, the company paid a total of CL$13.93 per share. Based on the last year's worth of payments, Aguas Andinas has a trailing yield of 5.1% on the current stock price of CLP274.6. 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 investigate whether Aguas Andinas can afford its dividend, and if the dividend could grow.

View our latest analysis for Aguas Andinas

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. Aguas Andinas paid out 71% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Aguas Andinas generated enough free cash flow to afford its dividend. The company paid out 105% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Aguas Andinas 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 Aguas Andinas's ability to maintain its dividend.

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

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SNSE:AGUAS-A Historic Dividend December 7th 2023

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Aguas Andinas's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Aguas Andinas has seen its dividend decline 3.5% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Is Aguas Andinas an attractive dividend stock, or better left on the shelf? Earnings per share have not grown and Aguas Andinas's profit payout ratio looks reasonable. However, it paid out a disconcertingly high percentage of its cashflow, which is a worry. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Aguas Andinas.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Aguas Andinas. To that end, you should learn about the 2 warning signs we've spotted with Aguas Andinas (including 1 which is potentially serious).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Aguas Andinas is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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