Delek Automotive Systems Ltd. (TLV:DLEA) stock is about to trade ex-dividend in 4 days. You will need to purchase shares before the 16th of February to receive the dividend, which will be paid on the 2nd of March.
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. Looking at the last 12 months of distributions, Delek Automotive Systems has a trailing yield of approximately 5.9% on its current stock price of ₪33.98. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Delek Automotive Systems paid out a comfortable 48% of its profit last year. 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. Fortunately, it paid out only 35% 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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Delek Automotive Systems's earnings per share have fallen at approximately 17% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Delek Automotive Systems's dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is Delek Automotive Systems worth buying for its 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. To summarise, Delek Automotive Systems looks okay on this analysis, although it doesn't appear a stand-out opportunity.
While it's tempting to invest in Delek Automotive Systems for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 4 warning signs for Delek Automotive Systems (2 are potentially serious!) that you ought to be aware of before buying the shares.
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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