Should You Buy Duniec Bros. Ltd. (TLV:DUNI) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Duniec Bros. Ltd. (TLV:DUNI) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 24th of February will not receive this dividend, which will be paid on the 8th of March.

The upcoming dividend for Duniec Bros is ₪10.00 per share, increased from last year's total dividends per share of ₪6.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Duniec Bros has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Duniec Bros

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. Duniec Bros paid out more than half (65%) of its earnings last year, which is a regular payout ratio for 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. The good news is it paid out just 24% of its free cash flow in the last year.

It's positive to see that Duniec Bros'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 Duniec Bros 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. That's why it's comforting to see Duniec Bros's earnings have been skyrocketing, up 24% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Duniec Bros has delivered 25% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Duniec Bros for the upcoming dividend? We like Duniec Bros's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Duniec Bros has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Duniec Bros has 3 warning signs (and 1 which is potentially serious) we think you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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