Interested In Essbio's (SNSE:ESSBIO-C) Upcoming CL$0.29434 Dividend? You Have Four Days Left

Readers hoping to buy Essbio S.A. (SNSE:ESSBIO-C) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Essbio's shares before the 19th of May in order to receive the dividend, which the company will pay on the 23rd of May.

The company's next dividend payment will be CL$0.29434 per share. Last year, in total, the company distributed CL$0.92 to shareholders. Last year's total dividend payments show that Essbio has a trailing yield of 6.3% on the current share price of CL$14.59. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Fortunately Essbio's payout ratio is modest, at just 45% of profit. A useful secondary check can be to evaluate whether Essbio generated enough free cash flow to afford its dividend. Over the past year it paid out 118% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Essbio 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 Essbio's ability to maintain its dividend.

Check out our latest analysis for Essbio

Click here to see how much of its profit Essbio paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Essbio, with earnings per share up 4.8% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Essbio dividends are largely the same as they were 10 years ago.

To Sum It Up

Has Essbio got what it takes to maintain its dividend payments? Essbio has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

If you're not too concerned about Essbio's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Be aware that Essbio is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.