Don't Buy Prosegur Cash, S.A. (BME:CASH) For Its Next Dividend Without Doing These Checks

Prosegur Cash, S.A. (BME:CASH) is about to trade ex-dividend in the next day or two. 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. In other words, investors can purchase Prosegur Cash's shares before the 12th of October in order to be eligible for the dividend, which will be paid on the 14th of October.

The company's next dividend payment will be €0.0079 per share, on the back of last year when the company paid a total of €0.039 to shareholders. Looking at the last 12 months of distributions, Prosegur Cash has a trailing yield of approximately 5.7% on its current stock price of €0.683. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Prosegur Cash has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Prosegur Cash

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Prosegur Cash paid out 237% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. Luckily it paid out just 24% of its free cash flow last year.

It's good to see that while Prosegur Cash's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Prosegur Cash's earnings per share have plummeted approximately 45% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Prosegur Cash's dividend payments per share have declined at 14% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Prosegur Cash? It's never great to see earnings per share declining, especially when a company is paying out 237% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Prosegur Cash and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 4 warning signs for Prosegur Cash that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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