Don't Buy Loulis Food Ingredients S.A. (ATH:KYLO) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Loulis Food Ingredients S.A. (ATH:KYLO) is about to go ex-dividend in just 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Loulis Food Ingredients' shares before the 26th of June in order to be eligible for the dividend, which will be paid on the 3rd of July.

The upcoming dividend for Loulis Food Ingredients will put a total of €0.12 per share in shareholders' pockets, up from last year's total dividends of €0.06. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Loulis Food Ingredients

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. Loulis Food Ingredients paid out 57% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Loulis Food Ingredients generated enough free cash flow to afford its dividend. Loulis Food Ingredients paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Loulis Food Ingredients's earnings per share have dropped 7.8% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Loulis Food Ingredients has seen its dividend decline 5.0% per annum on average over the past three years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is Loulis Food Ingredients an attractive dividend stock, or better left on the shelf? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Loulis Food Ingredients.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Loulis Food Ingredients. For instance, we've identified 4 warning signs for Loulis Food Ingredients (2 are concerning) you should be aware of.

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.