Readers hoping to buy Iberpapel Gestión, S.A. (BME:IBG) 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Iberpapel Gestión's shares before the 13th of July in order to receive the dividend, which the company will pay on the 15th of July.
The company's upcoming dividend is €0.081 a share, following on from the last 12 months, when the company distributed a total of €0.30 per share to shareholders. Calculating the last year's worth of payments shows that Iberpapel Gestión has a trailing yield of 1.7% on the current share price of €17.5. 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 Iberpapel Gestión has been able to grow its dividends, or if the dividend might be cut.
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. Iberpapel Gestión paid out 101% 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 Iberpapel Gestión generated enough free cash flow to afford its dividend.
It's good to see that while Iberpapel Gestión'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. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Iberpapel Gestión's earnings per share have fallen at approximately 27% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Iberpapel Gestión dividends are largely the same as they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
The Bottom Line
Has Iberpapel Gestión got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (101%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Iberpapel Gestión.
With that in mind though, if the poor dividend characteristics of Iberpapel Gestión don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for Iberpapel Gestión and you should be aware of these before buying any 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.
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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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