Why It Might Not Make Sense To Buy Delfingen Industry S.A. (EPA:ALDEL) For Its Upcoming Dividend

Delfingen Industry S.A. (EPA:ALDEL) stock is about to trade ex-dividend in 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. Accordingly, Delfingen Industry investors that purchase the stock on or after the 27th of June will not receive the dividend, which will be paid on the 1st of July.

The company's upcoming dividend is €0.77 a share, following on from the last 12 months, when the company distributed a total of €0.77 per share to shareholders. Looking at the last 12 months of distributions, Delfingen Industry has a trailing yield of approximately 3.6% on its current stock price of €21.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Delfingen Industry reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Delfingen Industry didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 13% of its free cash flow last year.

View our latest analysis for Delfingen Industry

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Delfingen Industry 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Delfingen Industry has increased its dividend at approximately 7.3% a year on average.

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

To Sum It Up

From a dividend perspective, should investors buy or avoid Delfingen Industry? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Delfingen Industry is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Delfingen Industry as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 4 warning signs with Delfingen Industry (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.