Here's Why We're Wary Of Buying Danya Cebus' (TLV:DNYA) For Its Upcoming Dividend

Danya Cebus Ltd. (TLV:DNYA) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day 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. Thus, you can purchase Danya Cebus' shares before the 19th of December in order to receive the dividend, which the company will pay on the 6th of January.

The company's next dividend payment will be ₪1.2747594 per share. Last year, in total, the company distributed ₪5.10 to shareholders. Based on the last year's worth of payments, Danya Cebus has a trailing yield of 4.1% on the current stock price of ₪123.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Danya Cebus

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year Danya Cebus paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Danya Cebus paid out more free cash flow than it generated - 179%, to be precise - last year, which we think is concerningly 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.

Danya Cebus does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

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

Click here to see how much of its profit Danya Cebus 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 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 Danya Cebus earnings per share are up 4.9% per annum over the last five years. Minimal earnings growth, combined with concerningly high payout ratios suggests that Danya Cebus is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Danya Cebus has delivered 38% dividend growth per year on average over the past three years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Danya Cebus 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: Danya Cebus 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 Danya Cebus as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for Danya Cebus and you should be aware of them before buying any 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.