E. Schnapp & Co. Works Ltd (TLV:SHNP) Stock Goes Ex-Dividend In Just Three Days

E. Schnapp & Co. Works Ltd (TLV:SHNP) stock is about to trade ex-dividend in 3 days. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase E. Schnapp Works' shares on or after the 2nd of April will not receive the dividend, which will be paid on the 21st of April.

The company's next dividend payment will be ₪0.7877181 per share, on the back of last year when the company paid a total of ₪0.79 to shareholders. Looking at the last 12 months of distributions, E. Schnapp Works has a trailing yield of approximately 4.6% on its current stock price of ₪17.02. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately E. Schnapp Works's payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether E. Schnapp Works generated enough free cash flow to afford its dividend. E. Schnapp Works paid out more free cash flow than it generated - 152%, to be precise - last year, which we think is concerningly 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.

While E. Schnapp Works'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. Cash is king, as they say, and were E. Schnapp Works to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out 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?

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. It's encouraging to see E. Schnapp Works has grown its earnings rapidly, up 22% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. E. Schnapp Works has delivered an average of 6.2% 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

Is E. Schnapp Works worth buying for its dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of E. Schnapp Works's dividend merits.

In light of that, while E. Schnapp Works has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for E. Schnapp Works 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.