Is It Worth Considering Israel Shipyards Industries Ltd (TLV:ISHI) For Its Upcoming Dividend?

It looks like Israel Shipyards Industries Ltd (TLV:ISHI) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Israel Shipyards Industries' shares before the 31st of March to receive the dividend, which will be paid on the 7th of April.

The company's upcoming dividend is ₪1.20 a share, following on from the last 12 months, when the company distributed a total of ₪1.20 per share to shareholders. Based on the last year's worth of payments, Israel Shipyards Industries has a trailing yield of 1.7% on the current stock price of ₪70.25. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Israel Shipyards Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Israel Shipyards Industries paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Israel Shipyards Industries generated enough free cash flow to afford its dividend. Over the past year it paid out 190% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Israel Shipyards Industries paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Israel Shipyards Industries to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Israel Shipyards Industries 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. This is why it's a relief to see Israel Shipyards Industries earnings per share are up 9.7% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last three years, Israel Shipyards Industries has lifted its dividend by approximately 6.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Israel Shipyards Industries worth buying for its dividend? Israel Shipyards Industries delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 190% of its cash flow over the last year, which is a mediocre outcome. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

So if you want to do more digging on Israel Shipyards Industries, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Israel Shipyards Industries and you should be aware of this before buying any shares.

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.