Is It Smart To Buy PLC S.p.A. (BIT:PLC) Before It Goes Ex-Dividend?

It looks like PLC S.p.A. (BIT:PLC) is about to go ex-dividend in the next 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, PLC investors that purchase the stock on or after the 5th of May will not receive the dividend, which will be paid on the 7th of May.

The company's upcoming dividend is €0.085 a share, following on from the last 12 months, when the company distributed a total of €0.085 per share to shareholders. Looking at the last 12 months of distributions, PLC has a trailing yield of approximately 4.6% on its current stock price of €1.86. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately PLC's payout ratio is modest, at just 46% of profit. 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. Fortunately, it paid out only 26% 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.

Check out our latest analysis for PLC

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see PLC earnings per share are up 8.4% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Given that PLC has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Is PLC worth buying for its dividend? Earnings per share have been growing moderately, and PLC is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and PLC is halfway there. There's a lot to like about PLC, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks PLC is facing. To help with this, we've discovered 1 warning sign for PLC that you should be aware of before investing in their shares.

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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.