Read This Before Considering Faes Farma, S.A. (BME:FAE) For Its Upcoming €0.14 Dividend

Faes Farma, S.A. (BME:FAE) stock is about to trade ex-dividend in 4 days. 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. Accordingly, Faes Farma investors that purchase the stock on or after the 16th of December will not receive the dividend, which will be paid on the 23rd of December.

The company's next dividend payment will be €0.14 per share. Last year, in total, the company distributed €0.17 to shareholders. Looking at the last 12 months of distributions, Faes Farma has a trailing yield of approximately 5.0% on its current stock price of €3.41. If you buy this business for its dividend, you should have an idea of whether Faes Farma's dividend is reliable and sustainable. As a result, readers should always check whether Faes Farma has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Faes Farma

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Faes Farma paid out 72% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Faes Farma's earnings per share have risen 18% per annum over the last five years. Faes Farma is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Faes Farma has lifted its dividend by approximately 9.5% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Faes Farma an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Faes Farma's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 72% and 62% respectively. Overall, it's hard to get excited about Faes Farma from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Faes Farma that we recommend you consider before investing in the business.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.