Don't Race Out To Buy Aquila SA (EPA:ALAQU) Just Because It's Going Ex-Dividend

Aquila SA (EPA:ALAQU) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is two business days 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 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 Aquila's shares before the 23rd of May to receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be €0.35 per share. Last year, in total, the company distributed €0.30 to shareholders. Based on the last year's worth of payments, Aquila has a trailing yield of 6.3% on the current stock price of €4.80. If you buy this business for its dividend, you should have an idea of whether Aquila's dividend is reliable and sustainable. As a result, readers should always check whether Aquila has been able to grow its dividends, or if the dividend might be cut.

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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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings.

Check out our latest analysis for Aquila

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Earnings per share are basically flat over the past 12 months. The best dividend stocks all grow their earnings per share over the long run, but it is hard to draw strong conclusions from any one year period.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Aquila has seen its dividend decline 5.0% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Should investors buy Aquila for the upcoming dividend? Aquila's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. Aquila doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Aquila. For example, we've found 4 warning signs for Aquila (2 are concerning!) that deserve your attention before investing in the shares.

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.