Why It Might Not Make Sense To Buy Borgosesia S.p.A. (BIT:BO) For Its Upcoming Dividend

Borgosesia S.p.A. (BIT:BO) stock is about to trade ex-dividend in 3 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. 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. Accordingly, Borgosesia investors that purchase the stock on or after the 21st of July will not receive the dividend, which will be paid on the 23rd of July.

The company's next dividend payment will be €0.024 per share, and in the last 12 months, the company paid a total of €0.024 per share. Based on the last year's worth of payments, Borgosesia has a trailing yield of 4.0% on the current stock price of €0.606. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Borgosesia has been able to grow its dividends, or if the dividend might be cut.

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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. That's why it's good to see Borgosesia paying out a modest 43% of its earnings. 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. Borgosesia paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

See our latest analysis for Borgosesia

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Borgosesia's 5.4% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Borgosesia's dividend payments per share have declined at 7.8% per year on average over the past five 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.

The Bottom Line

Is Borgosesia worth buying for its dividend? Borgosesia's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Borgosesia despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Borgosesia is showing 5 warning signs in our investment analysis, and 1 of those is potentially serious...

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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.