Four Days Left To Buy Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) Before The Ex-Dividend Date

Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Empresa Eléctrica de Magallanes' shares before the 11th of September in order to be eligible for the dividend, which will be paid on the 16th of September.

The company's upcoming dividend is CL$66.00 a share, following on from the last 12 months, when the company distributed a total of CL$338 per share to shareholders. Looking at the last 12 months of distributions, Empresa Eléctrica de Magallanes has a trailing yield of approximately 6.6% on its current stock price of CL$5100.00. If you buy this business for its dividend, you should have an idea of whether Empresa Eléctrica de Magallanes's dividend is reliable and sustainable. So we need to investigate whether Empresa Eléctrica de Magallanes can afford its dividend, and if the dividend could grow.

View our latest analysis for Empresa Eléctrica de Magallanes

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Empresa Eléctrica de Magallanes paid out a comfortable 36% 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. The company paid out 92% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

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. Were this to happen repeatedly, this would be a risk to Empresa Eléctrica de Magallanes's ability to maintain its dividend.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Empresa Eléctrica de Magallanes has grown its earnings rapidly, up 22% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Empresa Eléctrica de Magallanes has lifted its dividend by approximately 1.2% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

From a dividend perspective, should investors buy or avoid Empresa Eléctrica de Magallanes? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

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 3 warning signs for Empresa Eléctrica de Magallanes that we recommend you consider before investing in the business.

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.