Electra Consumer Products (1970) Ltd (TLV:ECP) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. Accordingly, Electra Consumer Products (1970) investors that purchase the stock on or after the 5th of September will not receive the dividend, which will be paid on the 3rd of October.
The company's next dividend payment will be ₪1.36 per share. Last year, in total, the company distributed ₪3.64 to shareholders. Based on the last year's worth of payments, Electra Consumer Products (1970) has a trailing yield of 2.0% on the current stock price of ₪178.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Electra Consumer Products (1970) has been able to grow its dividends, or if the dividend might be cut.
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. Electra Consumer Products (1970) paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Electra Consumer Products (1970) generated enough free cash flow to afford its dividend. Electra Consumer Products (1970) paid out more free cash flow than it generated - 184%, 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.
While Electra Consumer Products (1970)'s dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Electra Consumer Products (1970)'s ability to maintain its dividend.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Electra Consumer Products (1970) has grown its earnings rapidly, up 26% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, Electra Consumer Products (1970) has increased its dividend at approximately 2.4% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Should investors buy Electra Consumer Products (1970) for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Electra Consumer Products (1970) paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, while it has some positive characteristics, we're not inclined to race out and buy Electra Consumer Products (1970) today.
So if you want to do more digging on Electra Consumer Products (1970), you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 1 warning sign for Electra Consumer Products (1970) that we recommend you consider before investing in the business.
If you're in the market for dividend stocks, we recommend checking our list of top 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. 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.
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