We Wouldn't Be Too Quick To Buy ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 22nd of January in order to be eligible for this dividend, which will be paid on the 29th of January.

ACS Actividades de Construcción y Servicios's upcoming dividend is €0.39 a share, following on from the last 12 months, when the company distributed a total of €2.44 per share to shareholders. Last year's total dividend payments show that ACS Actividades de Construcción y Servicios has a trailing yield of 8.4% on the current share price of €28.91. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether ACS Actividades de Construcción y Servicios can afford its dividend, and if the dividend could grow.

Check out our latest analysis for ACS Actividades de Construcción y Servicios

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. Last year ACS Actividades de Construcción y Servicios paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while ACS Actividades de Construcción y Servicios's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at ACS Actividades de Construcción y Servicios, with earnings per share up 6.0% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, ACS Actividades de Construcción y Servicios has lifted its dividend by approximately 1.8% a year on average.

Final Takeaway

Has ACS Actividades de Construcción y Servicios got what it takes to maintain its dividend payments? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. Bottom line: ACS Actividades de Construcción y Servicios has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in ACS Actividades de Construcción y Servicios and want to know more, you'll find it very useful to know what risks this stock faces. To that end, you should learn about the 5 warning signs we've spotted with ACS Actividades de Construcción y Servicios (including 1 which is potentially serious).

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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