Is It Worth Considering Nicolás Correa, S.A. (BME:NEA) For Its Upcoming Dividend?

It looks like Nicolás Correa, S.A. (BME:NEA) is about to go ex-dividend in the next 4 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Nicolás Correa's shares before the 3rd of May to receive the dividend, which will be paid on the 6th of May.

The company's upcoming dividend is €0.2187 a share, following on from the last 12 months, when the company distributed a total of €0.27 per share to shareholders. Last year's total dividend payments show that Nicolás Correa has a trailing yield of 3.8% on the current share price of €7.06. 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 Nicolás Correa can afford its dividend, and if the dividend could grow.

See our latest analysis for Nicolás Correa

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. Nicolás Correa paid out a comfortable 31% of its profit last year. 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 more than half (72%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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 Nicolás Correa earnings per share are up 6.3% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Nicolás Correa has lifted its dividend by approximately 12% a year on average. 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.

The Bottom Line

Has Nicolás Correa got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that Nicolás Correa is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Nicolás Correa's dividend merits.

On that note, you'll want to research what risks Nicolás Correa is facing. In terms of investment risks, we've identified 2 warning signs with Nicolás Correa and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.