Don't Buy As Commercial Industrial Company of Computers and Toys S.A. (ATH:ASCO) For Its Next Dividend Without Doing These Checks

Readers hoping to buy As Commercial Industrial Company of Computers and Toys S.A. (ATH:ASCO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Therefore, if you purchase As Commercial Industrial Company of Computers and Toys' shares on or after the 26th of July, you won't be eligible to receive the dividend, when it is paid on the 1st of August.

The company's next dividend payment will be €0.12 per share, on the back of last year when the company paid a total of €0.12 to shareholders. Looking at the last 12 months of distributions, As Commercial Industrial Company of Computers and Toys has a trailing yield of approximately 4.2% on its current stock price of €2.73. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for As Commercial Industrial Company of Computers and Toys

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. As Commercial Industrial Company of Computers and Toys paid out 59% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 334% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how As Commercial Industrial Company of Computers and Toys intends to continue funding this dividend, or if it could be forced to cut the payment.

As Commercial Industrial Company of Computers and Toys does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While As Commercial Industrial Company of Computers and Toys'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. Were this to happen repeatedly, this would be a risk to As Commercial Industrial Company of Computers and Toys's ability to maintain its dividend.

Click here to see how much of its profit As Commercial Industrial Company of Computers and Toys paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that As Commercial Industrial Company of Computers and Toys's earnings are down 2.8% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past seven years, As Commercial Industrial Company of Computers and Toys has increased its dividend at approximately 9.8% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is As Commercial Industrial Company of Computers and Toys worth buying for its dividend? As Commercial Industrial Company of Computers and Toys had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in As Commercial Industrial Company of Computers and Toys and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 4 warning signs for As Commercial Industrial Company of Computers and Toys (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.