Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ENGIE SA (EPA:ENGI) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase ENGIE's shares on or after the 24th of May, you won't be eligible to receive the dividend, when it is paid on the 26th of May.
The company's next dividend payment will be €0.53 per share, on the back of last year when the company paid a total of €0.53 to shareholders. Based on the last year's worth of payments, ENGIE stock has a trailing yield of around 4.0% on the current share price of €13.122. If you buy this business for its dividend, you should have an idea of whether ENGIE's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. ENGIE lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If ENGIE didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 25% of its free cash flow in the past year.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. ENGIE reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ENGIE's dividend payments per share have declined at 9.9% per year on average over the past 10 years, which is uninspiring.
Remember, you can always get a snapshot of ENGIE's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Has ENGIE got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. In summary, it's hard to get excited about ENGIE from a dividend perspective.
While it's tempting to invest in ENGIE for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for ENGIE you should know about.
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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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. 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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