We Wouldn't Be Too Quick To Buy Isramco Negev 2 Limited Partnership (TLV:ISRA) Before It Goes Ex-Dividend

Isramco Negev 2 Limited Partnership (TLV:ISRA) stock is about to trade ex-dividend in 4 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 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. Meaning, you will need to purchase Isramco Negev 2 Limited Partnership's shares before the 19th of December to receive the dividend, which will be paid on the 26th of December.

The company's next dividend payment will be US$0.01541 per share, on the back of last year when the company paid a total of US$0.039 to shareholders. Based on the last year's worth of payments, Isramco Negev 2 Limited Partnership stock has a trailing yield of around 7.4% on the current share price of ₪1.889. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Isramco Negev 2 Limited Partnership can afford its dividend, and if the dividend could grow.

See our latest analysis for Isramco Negev 2 Limited Partnership

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. Isramco Negev 2 Limited Partnership is paying out an acceptable 56% of its profit, a common payout level among most companies. 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. It paid out more than half (70%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Isramco Negev 2 Limited Partnership's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Isramco Negev 2 Limited Partnership paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Isramco Negev 2 Limited Partnership's 17% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Isramco Negev 2 Limited Partnership has seen its dividend decline 13% per annum on average over the past seven years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has Isramco Negev 2 Limited Partnership got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Isramco Negev 2 Limited Partnership's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Isramco Negev 2 Limited Partnership don't faze you, it's worth being mindful of the risks involved with this business. For example, Isramco Negev 2 Limited Partnership has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.