Is It Worth Considering Bezeq The Israel Telecommunication Corp. Ltd (TLV:BEZQ) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Bezeq The Israel Telecommunication Corp. Ltd (TLV:BEZQ) is about to go ex-dividend in just four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Bezeq The Israel Telecommunication's shares on or after the 28th of September will not receive the dividend, which will be paid on the 19th of October.

The company's upcoming dividend is ₪0.2102622 a share, following on from the last 12 months, when the company distributed a total of ₪0.29 per share to shareholders. Based on the last year's worth of payments, Bezeq The Israel Telecommunication has a trailing yield of 4.6% on the current stock price of ₪6.21. 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 Bezeq The Israel Telecommunication has been able to grow its dividends, or if the dividend might be cut.

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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. Fortunately Bezeq The Israel Telecommunication's payout ratio is modest, at just 32% of profit. 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. Dividends consumed 52% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

View our latest analysis for Bezeq The Israel Telecommunication

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're encouraged by the steady growth at Bezeq The Israel Telecommunication, with earnings per share up 7.8% on average 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. Bezeq The Israel Telecommunication has seen its dividend decline 9.4% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

From a dividend perspective, should investors buy or avoid Bezeq The Israel Telecommunication? Earnings per share have been growing at a steady rate, and Bezeq The Israel Telecommunication paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So while Bezeq The Israel Telecommunication looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 2 warning signs with Bezeq The Israel Telecommunication and understanding them should be part of your investment process.

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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.