Should Income Investors Look At Eldan Transportation LTD (TLV:ELDT) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Eldan Transportation LTD (TLV:ELDT) is about to trade ex-dividend in the next two 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. Accordingly, Eldan Transportation investors that purchase the stock on or after the 7th of December will not receive the dividend, which will be paid on the 14th of December.

The company's next dividend payment will be ₪0.0770752 per share, on the back of last year when the company paid a total of ₪0.29 to shareholders. Looking at the last 12 months of distributions, Eldan Transportation has a trailing yield of approximately 1.7% on its current stock price of ₪8.206. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Eldan Transportation is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out an unsustainably high 338% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Eldan Transportation is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Eldan Transportation paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Eldan Transportation to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Eldan Transportation

Click here to see how much of its profit Eldan Transportation paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. To our modest chagrin, Eldan Transportation earnings per share have been effectively flat over the past year. The best dividend stocks all grow their earnings per share over the long run, but it is hard to draw strong conclusions from any one year period.

Unfortunately Eldan Transportation has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Should investors buy Eldan Transportation for the upcoming dividend? Earnings per share have been effectively flat over this time, and Eldan Transportation's paying out less than half its profits and 338% of its cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. Overall, it's hard to get excited about Eldan Transportation from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Eldan Transportation, you should know about the other risks facing this business. For example, we've found 1 warning sign for Eldan Transportation that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.