Don't Race Out To Buy Compagnie des Alpes SA (EPA:CDA) Just Because It's Going Ex-Dividend

Compagnie des Alpes SA (EPA:CDA) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Compagnie des Alpes' shares on or after the 20th of March will not receive the dividend, which will be paid on the 22nd of March.

The company's upcoming dividend is €0.91 a share, following on from the last 12 months, when the company distributed a total of €0.91 per share to shareholders. Calculating the last year's worth of payments shows that Compagnie des Alpes has a trailing yield of 6.6% on the current share price of €13.82. If you buy this business for its dividend, you should have an idea of whether Compagnie des Alpes's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Compagnie des Alpes

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. Compagnie des Alpes is paying out an acceptable 51% 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 dividends equivalent to 207% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Compagnie des Alpes intends to continue funding this dividend, or if it could be forced to cut the payment.

Compagnie des Alpes paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Compagnie des Alpes to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Compagnie des Alpes's earnings per share have been shrinking at 4.0% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Compagnie des Alpes has delivered an average of 11% per year annual increase in its dividend, based on the past nine years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Is Compagnie des Alpes an attractive dividend stock, or better left on the shelf? Compagnie des Alpes had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not that we think Compagnie des Alpes is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Compagnie des Alpes despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 3 warning signs for Compagnie des Alpes that we recommend you consider before investing in the business.

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.