Four Days Left Until STEF SA (EPA:STF) Trades Ex-Dividend

STEF SA (EPA:STF) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase STEF's shares on or after the 30th of April will not receive the dividend, which will be paid on the 3rd of May.

The company's next dividend payment will be €5.10 per share, on the back of last year when the company paid a total of €5.10 to shareholders. Last year's total dividend payments show that STEF has a trailing yield of 3.8% on the current share price of €134.40. If you buy this business for its dividend, you should have an idea of whether STEF's dividend is reliable and sustainable. So we need to investigate whether STEF can afford its dividend, and if the dividend could grow.

See our latest analysis for STEF

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. Fortunately STEF's payout ratio is modest, at just 36% of profit. A useful secondary check can be to evaluate whether STEF generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 239% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While STEF's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were STEF 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?

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. Fortunately for readers, STEF's earnings per share have been growing at 13% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, STEF has increased its dividend at approximately 13% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is STEF an attractive dividend stock, or better left on the shelf? We like that STEF has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about STEF from a dividend perspective.

While it's tempting to invest in STEF for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for STEF and you should be aware of them before buying any shares.

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.