Just Three Days Till ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) Will Be Trading Ex-Dividend

ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) is about to trade ex-dividend in the next three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase ACS Actividades de Construcción y Servicios' shares on or after the 19th of January, you won't be eligible to receive the dividend, when it is paid on the 26th of January.

The company's next dividend payment will be €0.37 per share, and in the last 12 months, the company paid a total of €2.01 per share. Based on the last year's worth of payments, ACS Actividades de Construcción y Servicios has a trailing yield of 6.0% on the current stock price of €40.19. If you buy this business for its dividend, you should have an idea of whether ACS Actividades de Construcción y Servicios's dividend is reliable and sustainable. So we need to investigate whether ACS Actividades de Construcción y Servicios can afford its dividend, and if the dividend could grow.

See our latest analysis for ACS Actividades de Construcción y Servicios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. ACS Actividades de Construcción y Servicios paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. 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. Fortunately, it paid out only 38% of its free cash flow in the past year.

It's positive to see that ACS Actividades de Construcción y Servicios'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see ACS Actividades de Construcción y Servicios earnings per share are up 2.5% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. ACS Actividades de Construcción y Servicios has delivered 7.7% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid ACS Actividades de Construcción y Servicios? While earnings per share growth has been modest, ACS Actividades de Construcción y Servicios's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of ACS Actividades de Construcción y Servicios's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for ACS Actividades de Construcción y Servicios you should know about.

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.