Sano Bruno's Enterprises (TLV:SANO1) Could Be A Buy For Its Upcoming Dividend

It looks like Sano Bruno's Enterprises Ltd (TLV:SANO1) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Sano Bruno's Enterprises' shares before the 11th of December in order to be eligible for the dividend, which will be paid on the 25th of December.

The company's upcoming dividend is ₪7.00 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 2.0% on the current stock price of ₪358.50. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Sano Bruno's Enterprises

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. Sano Bruno's Enterprises is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Fortunately, it paid out only 30% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Sano Bruno's Enterprises's earnings per share have risen 12% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sano Bruno's Enterprises has delivered 3.4% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Sano Bruno's Enterprises is keeping back more of its profits to grow the business.

To Sum It Up

Is Sano Bruno's Enterprises worth buying for its dividend? It's great that Sano Bruno's Enterprises is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Sano Bruno's Enterprises, and we would prioritise taking a closer look at it.

Want to learn more about Sano Bruno's Enterprises's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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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.