Dividend Investors: Don't Be Too Quick To Buy Veracruz Properties SOCIMI, S.A. (BME:YVCP) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Veracruz Properties SOCIMI, S.A. (BME:YVCP) is about to go ex-dividend in just two days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. Meaning, you will need to purchase Veracruz Properties SOCIMI's shares before the 20th of August to receive the dividend, which will be paid on the 22nd of August.

The company's upcoming dividend is €0.2061207 a share, following on from the last 12 months, when the company distributed a total of €1.04 per share to shareholders. Calculating the last year's worth of payments shows that Veracruz Properties SOCIMI has a trailing yield of 3.4% on the current share price of €30.80. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Veracruz Properties SOCIMI

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Veracruz Properties SOCIMI paid out 92% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Veracruz Properties SOCIMI generated enough free cash flow to afford its dividend. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Veracruz Properties SOCIMI's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit Veracruz Properties SOCIMI paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Veracruz Properties SOCIMI's earnings are down 4.1% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Veracruz Properties SOCIMI has delivered 22% dividend growth per year on average over the past three years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Veracruz Properties SOCIMI is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Is Veracruz Properties SOCIMI worth buying for its dividend? Earnings per share have been in decline, which is not encouraging. Worse, Veracruz Properties SOCIMI's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. Bottom line: Veracruz Properties SOCIMI has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Veracruz Properties SOCIMI and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 4 warning signs for Veracruz Properties SOCIMI (1 can't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.