Three Days Left Until Empresa Eléctrica Pehuenche S.A. (SNSE:PEHUENCHE) Trades Ex-Dividend

It looks like Empresa Eléctrica Pehuenche S.A. (SNSE:PEHUENCHE) is about to go ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Empresa Eléctrica Pehuenche's shares before the 13th of January to receive the dividend, which will be paid on the 17th of January.

The company's next dividend payment will be CL$54.37 per share. Last year, in total, the company distributed CL$251 to shareholders. Last year's total dividend payments show that Empresa Eléctrica Pehuenche has a trailing yield of 9.9% on the current share price of CL$2550.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Empresa Eléctrica Pehuenche has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Empresa Eléctrica Pehuenche

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. Empresa Eléctrica Pehuenche paid out a comfortable 34% 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. Over the past year it paid out 110% 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.

Empresa Eléctrica Pehuenche paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Empresa Eléctrica Pehuenche 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 Pehuenche 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. For this reason, we're glad to see Empresa Eléctrica Pehuenche'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 Pehuenche has delivered an average of 3.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Empresa Eléctrica Pehuenche is keeping back more of its profits to grow the business.

The Bottom Line

Has Empresa Eléctrica Pehuenche got what it takes to maintain its dividend payments? We like that Empresa Eléctrica Pehuenche 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. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So while Empresa Eléctrica Pehuenche looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Empresa Eléctrica Pehuenche 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.