De'Longhi S.p.A. (BIT:DLG) Passed Our Checks, And It's About To Pay A €0.54 Dividend

Readers hoping to buy De'Longhi S.p.A. (BIT:DLG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 21st of December in order to be eligible for this dividend, which will be paid on the 23rd of December.

De'Longhi's next dividend payment will be €0.54 per share, on the back of last year when the company paid a total of €0.54 to shareholders. Looking at the last 12 months of distributions, De'Longhi has a trailing yield of approximately 2.0% on its current stock price of €26.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for De'Longhi

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 De'Longhi's payout ratio is modest, at just 42% 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. It paid out 0.004% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that De'Longhi's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 encouraged by the steady growth at De'Longhi, with earnings per share up 8.7% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. De'Longhi has delivered 21% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is De'Longhi an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and De'Longhi is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but De'Longhi is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about De'Longhi, and we would prioritise taking a closer look at it.

While it's tempting to invest in De'Longhi for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with De'Longhi and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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