Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) Is About To Go Ex-Dividend, And It Pays A 6.1% Yield

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 3rd of December in order to be eligible for this dividend, which will be paid on the 9th of December.

Empresa Eléctrica de Magallanes's upcoming dividend is CL$279 a share, following on from the last 12 months, when the company distributed a total of CL$374 per share to shareholders. Calculating the last year's worth of payments shows that Empresa Eléctrica de Magallanes has a trailing yield of 6.1% on the current share price of CLP6100. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Empresa Eléctrica de Magallanes has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Empresa Eléctrica de Magallanes

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. Empresa Eléctrica de Magallanes paid out a comfortable 32% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Empresa Eléctrica de Magallanes paid out more free cash flow than it generated - 168%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Empresa Eléctrica de Magallanes'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 Eléctrica de Magallanes 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 Empresa Eléctrica de Magallanes 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. For this reason, we're glad to see Empresa Eléctrica de Magallanes's earnings per share have risen 11% 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Empresa Eléctrica de Magallanes's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Should investors buy Empresa Eléctrica de Magallanes for the upcoming dividend? We like that Empresa Eléctrica de Magallanes has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about Empresa Eléctrica de Magallanes from a dividend perspective.

While it's tempting to invest in Empresa Eléctrica de Magallanes for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Empresa Eléctrica de Magallanes that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top 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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