It Might Not Be A Great Idea To Buy Ferrovial SE (BME:FER) For Its Next Dividend

Ferrovial SE (BME:FER) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Ferrovial's shares before the 27th of October to receive the dividend, which will be paid on the 9th of November.

The company's next dividend payment will be €0.43 per share. Last year, in total, the company distributed €0.70 to shareholders. Calculating the last year's worth of payments shows that Ferrovial has a trailing yield of 2.5% on the current share price of €28.06. If you buy this business for its dividend, you should have an idea of whether Ferrovial's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Ferrovial

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ferrovial paid out 127% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Ferrovial's earnings per share have fallen at approximately 15% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ferrovial has seen its dividend decline 5.6% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is Ferrovial an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and Ferrovial is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Ferrovial doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering Ferrovial as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 4 warning signs for Ferrovial (2 make us uncomfortable!) that deserve your attention before investing in the shares.

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.