Clínica Baviera, S.A. (BME:CBAV) Passed Our Checks, And It's About To Pay A €0.65 Dividend

Readers hoping to buy Clínica Baviera, S.A. (BME:CBAV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Clínica Baviera's shares on or after the 31st of May will not receive the dividend, which will be paid on the 2nd of June.

The company's upcoming dividend is €0.65 a share, following on from the last 12 months, when the company distributed a total of €1.03 per share to shareholders. Based on the last year's worth of payments, Clínica Baviera has a trailing yield of 6.9% on the current stock price of €18.9. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Clínica Baviera can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Clínica Baviera

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. Clínica Baviera paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. 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. Fortunately, it paid out only 43% of its free cash flow in the past year.

It's positive to see that Clínica Baviera's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Clínica Baviera paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Clínica Baviera has grown its earnings rapidly, up 25% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Clínica Baviera could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Clínica Baviera has delivered an average of 29% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Clínica Baviera? We like Clínica Baviera's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Clínica Baviera looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Clínica Baviera is facing. Case in point: We've spotted 1 warning sign for Clínica Baviera you should be aware of.

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.