Should You Buy Danel (Adir Yeoshua) Ltd (TLV:DANE) For Its Upcoming Dividend?

Danel (Adir Yeoshua) Ltd (TLV:DANE) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 26th of November will not receive this dividend, which will be paid on the 10th of December.

Danel (Adir Yeoshua)'s next dividend payment will be ₪5.00 per share, and in the last 12 months, the company paid a total of ₪11.75 per share. Calculating the last year's worth of payments shows that Danel (Adir Yeoshua) has a trailing yield of 2.5% on the current share price of ₪475.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Danel (Adir Yeoshua)

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 33% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Danel (Adir Yeoshua) 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. With that in mind, we're encouraged by the steady growth at Danel (Adir Yeoshua), with earnings per share up 8.2% on average over the last five years. Decent historical earnings per share growth suggests Danel (Adir Yeoshua) has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Danel (Adir Yeoshua) has lifted its dividend by approximately 0.7% a year on average.

The Bottom Line

Should investors buy Danel (Adir Yeoshua) for the upcoming dividend? Earnings per share growth has been modest and Danel (Adir Yeoshua) paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy Danel (Adir Yeoshua) today.

While it's tempting to invest in Danel (Adir Yeoshua) for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Danel (Adir Yeoshua) you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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