Do These 3 Checks Before Buying Span d.d. (ZGSE:SPAN) For Its Upcoming Dividend

It looks like Span d.d. (ZGSE:SPAN) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Span d.d's shares before the 21st of June to receive the dividend, which will be paid on the 5th of July.

The company's upcoming dividend is €0.30 a share, following on from the last 12 months, when the company distributed a total of €1.26 per share to shareholders. Last year's total dividend payments show that Span d.d has a trailing yield of 2.8% on the current share price of €45.00. If you buy this business for its dividend, you should have an idea of whether Span d.d's dividend is reliable and sustainable. As a result, readers should always check whether Span d.d has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Span d.d

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Span d.d paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 59% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Span d.d's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Span d.d's 25% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Span d.d has delivered 40% dividend growth per year on average over the past two years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

From a dividend perspective, should investors buy or avoid Span d.d? While earnings per share are shrinking, it's encouraging to see that at least Span d.d's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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 Span d.d. For example, we've found 3 warning signs for Span d.d that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com