Borgosesia S.p.A. (BIT:BO) Is About To Go Ex-Dividend, And It Pays A 3.5% Yield

Borgosesia S.p.A. (BIT:BO) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Borgosesia's shares before the 22nd of July to receive the dividend, which will be paid on the 24th of July.

The company's upcoming dividend is €0.024 a share, following on from the last 12 months, when the company distributed a total of €0.024 per share to shareholders. Calculating the last year's worth of payments shows that Borgosesia has a trailing yield of 3.5% on the current share price of €0.694. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Borgosesia

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. Borgosesia has a low and conservative payout ratio of just 19% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Borgosesia paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see how much of its profit Borgosesia 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Borgosesia has grown its earnings rapidly, up 29% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Borgosesia has seen its dividend decline 9.6% per annum on average over the past four years, which is not great to see. Borgosesia is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Has Borgosesia got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Borgosesia today.

In light of that, while Borgosesia has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 4 warning signs we've spotted with Borgosesia (including 1 which is a bit unpleasant).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com