Why You Might Be Interested In Castro Model Ltd. (TLV:CAST) For Its Upcoming Dividend

It looks like Castro Model Ltd. (TLV:CAST) is about to go ex-dividend in the next 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Castro Model's shares on or after the 4th of September will not receive the dividend, which will be paid on the 14th of September.

The company's next dividend payment will be ₪23.3858 per share, and in the last 12 months, the company paid a total of ₪7.27 per share. Looking at the last 12 months of distributions, Castro Model has a trailing yield of approximately 4.2% on its current stock price of ₪172.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Castro Model 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. Castro Model paid out a comfortable 44% of its profit last year. A useful secondary check can be to evaluate whether Castro Model generated enough free cash flow to afford its dividend. It distributed 50% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Castro Model'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.

View our latest analysis for Castro Model

Click here to see how much of its profit Castro Model 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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Castro Model has grown its earnings rapidly, up 40% a year for the past five years. Castro Model is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Castro Model has delivered 2.4% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Castro Model is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Castro Model for the upcoming dividend? Castro Model has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

So while Castro Model looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Castro Model that you should be aware of before investing in their 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.