Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) Is About To Go Ex-Dividend, And It Pays A 8.1% Yield

Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Empresa Eléctrica de Magallanes' shares before the 10th of September in order to be eligible for the dividend, which will be paid on the 15th of September.

The company's next dividend payment will be CL$102.00 per share, on the back of last year when the company paid a total of CL$432 to shareholders. Looking at the last 12 months of distributions, Empresa Eléctrica de Magallanes has a trailing yield of approximately 8.1% on its current stock price of CL$5365.40. 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 investigate whether Empresa Eléctrica de Magallanes can afford its dividend, and if the dividend could grow.

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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. Fortunately Empresa Eléctrica de Magallanes's payout ratio is modest, at just 35% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Empresa Eléctrica de Magallanes'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.

View our latest analysis for Empresa Eléctrica de Magallanes

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 encouraged by the steady growth at Empresa Eléctrica de Magallanes, with earnings per share up 6.0% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Empresa Eléctrica de Magallanes has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Empresa Eléctrica de Magallanes? Earnings per share have been growing at a steady rate, and Empresa Eléctrica de Magallanes paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Empresa Eléctrica de Magallanes today.

So while Empresa Eléctrica de Magallanes looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Empresa Eléctrica de Magallanes has 3 warning signs we think you should be aware of.

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.