Read This Before Considering Aran Research & Development (1982) Ltd. (TLV:ARAN) For Its Upcoming ₪2.2201328 Dividend

Aran Research & Development (1982) Ltd. (TLV:ARAN) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Aran Research & Development (1982) investors that purchase the stock on or after the 5th of October will not receive the dividend, which will be paid on the 16th of October.

The company's next dividend payment will be ₪2.2201328 per share, on the back of last year when the company paid a total of ₪2.22 to shareholders. Last year's total dividend payments show that Aran Research & Development (1982) has a trailing yield of 7.5% on the current share price of ₪29.80. If you buy this business for its dividend, you should have an idea of whether Aran Research & Development (1982)'s dividend is reliable and sustainable. So we need to investigate whether Aran Research & Development (1982) can afford its dividend, and if the dividend could grow.

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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. Aran Research & Development (1982) distributed an unsustainably high 138% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Aran Research & Development (1982) generated enough free cash flow to afford its dividend. The good news is it paid out just 8.4% of its free cash flow in the last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Aran Research & Development (1982) fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Check out our latest analysis for Aran Research & Development (1982)

Click here to see how much of its profit Aran Research & Development (1982) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Aran Research & Development (1982) has grown its earnings rapidly, up 38% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Aran Research & Development (1982) has lifted its dividend by approximately 16% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Has Aran Research & Development (1982) got what it takes to maintain its dividend payments? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Aran Research & Development (1982) is paying out so much of its profit. 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.

In light of that, while Aran Research & Development (1982) has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Aran Research & Development (1982) and understanding them should be part of your investment process.

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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.