Do These 3 Checks Before Buying ADA Société Anonyme (EPA:ALADA) For Its Upcoming Dividend

Readers hoping to buy ADA Société Anonyme (EPA:ALADA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 18th of September will not receive this dividend, which will be paid on the 20th of September.

ADA Société Anonyme's next dividend payment will be €1.00 per share, and in the last 12 months, the company paid a total of €1.00 per share. Based on the last year's worth of payments, ADA Société Anonyme stock has a trailing yield of around 8.3% on the current share price of €12. If you buy this business for its dividend, you should have an idea of whether ADA Société Anonyme's dividend is reliable and sustainable. As a result, readers should always check whether ADA Société Anonyme has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for ADA Société Anonyme

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. Last year ADA Société Anonyme paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. ADA Société Anonyme paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and ADA Société Anonyme fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 encouraged by the steady growth at ADA Société Anonyme, with earnings per share up 3.1% on average over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past eight years, ADA Société Anonyme has increased its dividend at approximately 33% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is ADA Société Anonyme worth buying for its dividend? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Want to learn more about ADA Société Anonyme? Here's a visualisation of its historical rate of revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.