Delek Automotive Systems Ltd. (TLV:DLEA) Pays A ₪1.00 Dividend In Just Three Days

Delek Automotive Systems Ltd. (TLV:DLEA) stock is about to trade ex-dividend in three days. Ex-dividend means that investors that purchase the stock on or after the 12th of January will not receive this dividend, which will be paid on the 20th of January.

Delek Automotive Systems's upcoming dividend is ₪1.00 a share, following on from the last 12 months, when the company distributed a total of ₪2.00 per share to shareholders. Last year's total dividend payments show that Delek Automotive Systems has a trailing yield of 6.5% on the current share price of ₪30.92. 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 Delek Automotive Systems can afford its dividend, and if the dividend could grow.

View our latest analysis for Delek Automotive Systems

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Delek Automotive Systems paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Delek Automotive Systems generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

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 Delek Automotive Systems paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Delek Automotive Systems's earnings per share have dropped 17% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Delek Automotive Systems has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Should investors buy Delek Automotive Systems for the upcoming dividend? Delek Automotive Systems has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 4 warning signs for Delek Automotive Systems (of which 2 are potentially serious!) you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top 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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