Why It Might Not Make Sense To Buy Elve S.A. (ATH:ELBE) For Its Upcoming Dividend

It looks like Elve S.A. (ATH:ELBE) is about to go ex-dividend in the next three days. The ex-dividend date is commonly two business days 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 as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Elve's shares on or after the 23rd of October, you won't be eligible to receive the dividend, when it is paid on the 30th of October.

The company's next dividend payment will be €0.40 per share, on the back of last year when the company paid a total of €0.40 to shareholders. Based on the last year's worth of payments, Elve stock has a trailing yield of around 7.0% on the current share price of €5.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Elve has been able to grow its dividends, or if the dividend might be cut.

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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. Elve distributed an unsustainably high 149% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

See our latest analysis for Elve

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Elve, with earnings per share up 5.5% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Elve has delivered an average of 2.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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

Has Elve got what it takes to maintain its dividend payments? Elve has been steadily growing its earnings per share, and it is paying out just of its cash flow but an uncomfortably high 149% of its income. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Elve don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 6 warning signs we've spotted with Elve (including 1 which is potentially serious).

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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.