Inversiones Aguas Metropolitanas S.A. (SNSE:IAM) Goes Ex-Dividend Soon

Inversiones Aguas Metropolitanas S.A. (SNSE:IAM) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Inversiones Aguas Metropolitanas' shares before the 1st of December in order to receive the dividend, which the company will pay on the 5th of December.

The company's upcoming dividend is CL$20.688 a share, following on from the last 12 months, when the company distributed a total of CL$42.06 per share to shareholders. Based on the last year's worth of payments, Inversiones Aguas Metropolitanas stock has a trailing yield of around 4.2% on the current share price of CL$1000.00. 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 check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Inversiones Aguas Metropolitanas paid out a comfortable 36% of its profit last year. 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 57% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Inversiones Aguas Metropolitanas'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 Inversiones Aguas Metropolitanas

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Inversiones Aguas Metropolitanas's earnings per share have been shrinking at 2.8% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Inversiones Aguas Metropolitanas's dividend payments per share have declined at 3.3% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Inversiones Aguas Metropolitanas? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. In summary, it's hard to get excited about Inversiones Aguas Metropolitanas from a dividend perspective.

So if you want to do more digging on Inversiones Aguas Metropolitanas, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 2 warning signs for Inversiones Aguas Metropolitanas and you should be aware of them before buying any shares.

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.