Should Income Investors Look At Industria de Diseño Textil, S.A. (BME:ITX) Before Its Ex-Dividend?

It looks like Industria de Diseño Textil, S.A. (BME:ITX) is about to go ex-dividend in the next four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Industria de Diseño Textil's shares before the 29th of April to receive the dividend, which will be paid on the 2nd of May.

The company's next dividend payment will be €0.6237 per share, and in the last 12 months, the company paid a total of €1.54 per share. Looking at the last 12 months of distributions, Industria de Diseño Textil has a trailing yield of approximately 3.3% on its current stock price of €46.03. If you buy this business for its dividend, you should have an idea of whether Industria de Diseño Textil's dividend is reliable and sustainable. So we need to investigate whether Industria de Diseño Textil can afford its dividend, and if the dividend could grow.

See our latest analysis for Industria de Diseño Textil

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Industria de Diseño Textil is paying out an acceptable 60% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 55% of its free cash flow as dividends, within the usual 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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Industria de Diseño Textil, with earnings per share up 9.3% on average over the last five years. Decent historical earnings per share growth suggests Industria de Diseño Textil has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

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, Industria de Diseño Textil has lifted its dividend by approximately 12% 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

Has Industria de Diseño Textil got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Industria de Diseño Textil paid out a bit over half of its earnings and free cash flow last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

If you want to look further into Industria de Diseño Textil, it's worth knowing the risks this business faces. For example - Industria de Diseño Textil has 1 warning sign we think 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.