Don't Race Out To Buy Bolloré SE (EPA:BOL) Just Because It's Going Ex-Dividend

Bolloré SE (EPA:BOL) is about to trade ex-dividend in the next 3 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 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, Bolloré investors that purchase the stock on or after the 25th of June will not receive the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be €0.05 per share. Last year, in total, the company distributed €0.07 to shareholders. Based on the last year's worth of payments, Bolloré has a trailing yield of 1.2% on the current stock price of €5.85. If you buy this business for its dividend, you should have an idea of whether Bolloré's dividend is reliable and sustainable. As a result, readers should always check whether Bolloré has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Bolloré

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. Bolloré paid out 176% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Bolloré generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Bolloré's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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 earnings fall far enough, the company could be forced to cut its dividend. Bolloré's earnings per share have fallen at approximately 12% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Bolloré has lifted its dividend by approximately 8.5% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Bolloré is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Has Bolloré got what it takes to maintain its dividend payments? It's not a great combination to see a company with earnings in decline and paying out 176% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Bolloré's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Bolloré.

Ever wonder what the future holds for Bolloré? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

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