Dividend Investors: Don't Be Too Quick To Buy Viscofan, S.A. (BME:VIS) For Its Upcoming Dividend

Readers hoping to buy Viscofan, S.A. (BME:VIS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Viscofan investors that purchase the stock on or after the 22nd of November will not receive the dividend, which will be paid on the 6th of December.

The company's next dividend payment will be €1.134 per share, on the back of last year when the company paid a total of €3.00 to shareholders. Last year's total dividend payments show that Viscofan has a trailing yield of 4.9% on the current share price of €61.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Viscofan can afford its dividend, and if the dividend could grow.

View our latest analysis for Viscofan

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Viscofan paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Viscofan generated enough free cash flow to afford its dividend. Dividends consumed 69% 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 Viscofan'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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Viscofan, with earnings per share up 3.5% 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. Viscofan has delivered 10% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Viscofan for the upcoming dividend? While earnings per share have been growing slowly, Viscofan is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its 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 Viscofan 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 1 warning sign for Viscofan that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.