Is It Smart To Buy Gav-Yam Lands Corp. Ltd (TLV:GVYM) Before It Goes Ex-Dividend?

It looks like Gav-Yam Lands Corp. Ltd (TLV:GVYM) 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Gav-Yam Lands' shares before the 12th of November in order to be eligible for the dividend, which will be paid on the 19th of November.

The company's next dividend payment will be ₪0.2950921 per share. Last year, in total, the company distributed ₪1.23 to shareholders. Based on the last year's worth of payments, Gav-Yam Lands has a trailing yield of 4.2% on the current stock price of ₪29.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Gav-Yam Lands

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Gav-Yam Lands paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Gav-Yam Lands'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 Gav-Yam Lands 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 Gav-Yam Lands earnings per share are up 9.6% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Gav-Yam Lands has increased its dividend at approximately 8.4% 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.

The Bottom Line

Is Gav-Yam Lands worth buying for its dividend? Earnings per share have been growing at a steady rate, and Gav-Yam Lands paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, Gav-Yam Lands looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Gav-Yam Lands has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 4 warning signs for Gav-Yam Lands (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

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.