Don't Race Out To Buy Acerinox, S.A. (BME:ACX) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Acerinox, S.A. (BME:ACX) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 30th of November, you won't be eligible to receive this dividend, when it is paid on the 2nd of December.

Acerinox's next dividend payment will be €0.32 per share, on the back of last year when the company paid a total of €0.50 to shareholders. Last year's total dividend payments show that Acerinox has a trailing yield of 5.4% on the current share price of €9.254. 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 Acerinox can afford its dividend, and if the dividend could grow.

View our latest analysis for Acerinox

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. Acerinox reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 45% of its free cash flow in the past year.

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. Acerinox reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Acerinox has lifted its dividend by approximately 1.1% a year on average.

Get our latest analysis on Acerinox's balance sheet health here.

Final Takeaway

Is Acerinox an attractive dividend stock, or better left on the shelf? It's hard to get used to Acerinox paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Acerinox despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 3 warning signs for Acerinox (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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