Three Days Left Until Construcciones y Auxiliar de Ferrocarriles, S.A. (BME:CAF) Trades Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Construcciones y Auxiliar de Ferrocarriles, S.A. (BME:CAF) is about to go ex-dividend in just three days. The ex-dividend date is one business day 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. 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. This means that investors who purchase Construcciones y Auxiliar de Ferrocarriles' shares on or after the 4th of July will not receive the dividend, which will be paid on the 8th of July.

The company's next dividend payment will be €0.8991 per share, on the back of last year when the company paid a total of €1.11 to shareholders. Based on the last year's worth of payments, Construcciones y Auxiliar de Ferrocarriles stock has a trailing yield of around 3.2% on the current share price of €35.10. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Construcciones y Auxiliar de Ferrocarriles

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. That's why it's good to see Construcciones y Auxiliar de Ferrocarriles paying out a modest 43% of its earnings. 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 past year it paid out 120% 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.

Construcciones y Auxiliar de Ferrocarriles paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Construcciones y Auxiliar de Ferrocarriles's ability to maintain its dividend.

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. Fortunately for readers, Construcciones y Auxiliar de Ferrocarriles's earnings per share have been growing at 16% a year for the past 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Construcciones y Auxiliar de Ferrocarriles has delivered an average of 0.6% 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 Construcciones y Auxiliar de Ferrocarriles is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Construcciones y Auxiliar de Ferrocarriles? We like that Construcciones y Auxiliar de Ferrocarriles 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. In summary, it's hard to get excited about Construcciones y Auxiliar de Ferrocarriles from a dividend perspective.

While it's tempting to invest in Construcciones y Auxiliar de Ferrocarriles for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Construcciones y Auxiliar de Ferrocarriles that we recommend you consider before investing in the business.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com