Do These 3 Checks Before Buying E. Schnapp & Co. Works Ltd (TLV:SHNP) For Its Upcoming Dividend

Readers hoping to buy E. Schnapp & Co. Works Ltd (TLV:SHNP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days 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. Accordingly, E. Schnapp Works investors that purchase the stock on or after the 1st of September will not receive the dividend, which will be paid on the 8th of September.

The company's upcoming dividend is ₪0.0787718 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 E. Schnapp Works has a trailing yield of 8.0% on the current share price of ₪15.78. 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 E. Schnapp Works has been able to grow its dividends, or if the dividend might be cut.

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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. An unusually high payout ratio of 258% of its profit suggests something is happening other than the usual distribution of profits to shareholders. 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 past year it paid out 164% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given E. Schnapp Works's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

See our latest analysis for E. Schnapp Works

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see E. Schnapp Works earnings per share are up 2.3% per annum over the last five years. Earnings are not growing much and E. Schnapp Works paid out a lot more than it earned in profit last year. This makes the dividend look potentially unsustainable in the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. E. Schnapp Works has delivered 7.7% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is E. Schnapp Works an attractive dividend stock, or better left on the shelf? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. Bottom line: E. Schnapp Works has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering E. Schnapp Works as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 4 warning signs for E. Schnapp Works (1 is potentially serious!) that deserve your attention before investing in the shares.

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.