EXEL Industries (EPA:EXE) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see EXEL Industries SA (EPA:EXE) is about to trade ex-dividend in the next four 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. This means that investors who purchase EXEL Industries' shares on or after the 9th of February will not receive the dividend, which will be paid on the 13th of February.

The company's next dividend payment will be €1.57 per share. Last year, in total, the company distributed €1.57 to shareholders. Last year's total dividend payments show that EXEL Industries has a trailing yield of 2.7% on the current share price of €57.40. If you buy this business for its dividend, you should have an idea of whether EXEL Industries's dividend is reliable and sustainable. As a result, readers should always check whether EXEL Industries has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for EXEL Industries

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. EXEL Industries paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 11% of its free cash flow as dividends last year, which is conservatively low.

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?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that EXEL Industries's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. EXEL Industries is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, EXEL Industries has increased its dividend at approximately 4.3% a year on average.

Final Takeaway

Is EXEL Industries an attractive dividend stock, or better left on the shelf? Earnings per share have been flat over this time, but we're intrigued to see that EXEL Industries is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but EXEL Industries is halfway there. There's a lot to like about EXEL Industries, and we would prioritise taking a closer look at it.

While it's tempting to invest in EXEL Industries for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with EXEL Industries and understanding them should be part of your investment process.

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.