Stock Analysis

It Might Not Be A Great Idea To Buy Danya Cebus Ltd (TLV:DNYA) For Its Next Dividend

Source: Shutterstock

Readers hoping to buy Danya Cebus Ltd (TLV:DNYA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Danya Cebus' shares on or after the 20th of March, you won't be eligible to receive the dividend, when it is paid on the 17th of April.

The company's next dividend payment will be ₪1.28 per share, on the back of last year when the company paid a total of ₪4.49 to shareholders. Based on the last year's worth of payments, Danya Cebus stock has a trailing yield of around 7.7% on the current share price of ₪66.4. 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 investigate whether Danya Cebus can afford its dividend, and if the dividend could grow.

View our latest analysis for Danya Cebus

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 77% 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 worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 100% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Danya Cebus 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 Danya Cebus 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 Danya Cebus paid out over the last 12 months.

TASE:DNYA Historic Dividend March 16th 2023

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Danya Cebus's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, 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. Danya Cebus has delivered an average of 64% per year annual increase in its dividend, based on the past two years of dividend payments.

To Sum It Up

Is Danya Cebus an attractive dividend stock, or better left on the shelf? In addition to earnings being flat, Danya Cebus is paying out a reasonable percentage of its earnings as profits. However, the dividend was not well covered by free cash flow. It's not that we think Danya Cebus is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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. Every company has risks, and we've spotted 2 warning signs for Danya Cebus (of which 1 is potentially serious!) you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Danya Cebus is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis