Is It Smart To Buy Eurocell plc (LON:ECEL) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
September 11, 2021
LSE:ECEL
Source: Shutterstock

It looks like Eurocell plc (LON:ECEL) is about to go ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Eurocell's shares before the 16th of September in order to be eligible for the dividend, which will be paid on the 8th of October.

The company's next dividend payment will be UK£0.032 per share, on the back of last year when the company paid a total of UK£0.064 to shareholders. Based on the last year's worth of payments, Eurocell has a trailing yield of 2.3% on the current stock price of £2.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Eurocell has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Eurocell

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. Eurocell has a low and conservative payout ratio of just 17% of its income after tax.

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

historic-dividend
LSE:ECEL Historic Dividend September 12th 2021

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Eurocell earnings per share are up 3.5% per annum over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, Eurocell has lifted its dividend by approximately 2.9% 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.

The Bottom Line

From a dividend perspective, should investors buy or avoid Eurocell? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Eurocell looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

While it's tempting to invest in Eurocell for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Eurocell you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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