Four Days Left To Buy Sano Bruno's Enterprises Ltd (TLV:SANO1) Before The Ex-Dividend Date

It looks like Sano Bruno's Enterprises Ltd (TLV:SANO1) is about to go ex-dividend in the next four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Sano Bruno's Enterprises' shares before the 11th of December to receive the dividend, which will be paid on the 25th of December.

The company's upcoming dividend is ₪2.25 a share, following on from the last 12 months, when the company distributed a total of ₪7.00 per share to shareholders. Based on the last year's worth of payments, Sano Bruno's Enterprises has a trailing yield of 1.4% on the current stock price of ₪414.70. 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 Sano Bruno's Enterprises can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sano Bruno's Enterprises paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Over the last year, it paid out dividends equivalent to 308% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Sano Bruno's Enterprises intends to continue funding this dividend, or if it could be forced to cut the payment.

Sano Bruno's Enterprises 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.

While Sano Bruno's Enterprises'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 Sano Bruno's Enterprises's ability to maintain its dividend.

See our latest analysis for Sano Bruno's Enterprises

Click here to see how much of its profit Sano Bruno's Enterprises paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Sano Bruno's Enterprises's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, 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. Sano Bruno's Enterprises has delivered 5.1% dividend growth per year on average over the past 10 years. 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.

To Sum It Up

Is Sano Bruno's Enterprises worth buying for its dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

Curious about whether Sano Bruno's Enterprises has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.