Zanlakol Ltd (TLV:ZNKL) Will Pay A ₪1.12 Dividend In Four Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Zanlakol Ltd (TLV:ZNKL) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Zanlakol's shares before the 28th of September in order to be eligible for the dividend, which will be paid on the 19th of October.

The company's next dividend payment will be ₪1.12 per share, on the back of last year when the company paid a total of ₪1.12 to shareholders. Looking at the last 12 months of distributions, Zanlakol has a trailing yield of approximately 5.6% on its current stock price of ₪20.21. 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 Zanlakol can afford its dividend, and if the dividend could grow.

See our latest analysis for Zanlakol

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Zanlakol's payout ratio is modest, at just 48% of profit. 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 distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Zanlakol'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 Zanlakol 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Zanlakol earnings per share are up 7.3% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Zanlakol has lifted its dividend by approximately 13% a year on average. 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 Zanlakol an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Zanlakol is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Zanlakol is halfway there. Zanlakol looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Zanlakol for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 3 warning signs with Zanlakol and understanding them should be part of your investment process.

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