Don't Buy Vassiliko Cement Works Public Company Ltd (CSE:VCW) For Its Next Dividend Without Doing These Checks

Vassiliko Cement Works Public Company Ltd (CSE:VCW) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day 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 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 Vassiliko Cement Works' shares before the 31st of May to receive the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be €0.13 per share, and in the last 12 months, the company paid a total of €0.23 per share. Last year's total dividend payments show that Vassiliko Cement Works has a trailing yield of 7.5% on the current share price of €2.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Vassiliko Cement Works has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Vassiliko Cement Works

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. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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. It paid out an unsustainably high 393% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Vassiliko Cement Works is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Vassiliko Cement Works'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. Cash is king, as they say, and were Vassiliko Cement Works 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 Vassiliko Cement Works 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 fall far enough, the company could be forced to cut its dividend. So we're not too excited that Vassiliko Cement Works's earnings are down 3.3% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Vassiliko Cement Works has delivered 30% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Vassiliko Cement Works is already paying out 87% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

From a dividend perspective, should investors buy or avoid Vassiliko Cement Works? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Vassiliko Cement Works despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with Vassiliko Cement Works (at least 1 which is potentially serious), and understanding these should be part of your investment process.

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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.