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. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase De'Longhi's shares on or after the 24th of May, you won't be eligible to receive the dividend, when it is paid on the 26th of May.
The company's next dividend payment will be €0.54 per share. Last year, in total, the company distributed €0.54 to shareholders. Last year's total dividend payments show that De'Longhi has a trailing yield of 1.5% on the current share price of €36.2. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. De'Longhi paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether De'Longhi generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last 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.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, De'Longhi's earnings per share have been growing at 13% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
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 an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has De'Longhi got what it takes to maintain its dividend payments? It's great that De'Longhi is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. De'Longhi looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks De'Longhi is facing. Every company has risks, and we've spotted 2 warning signs for De'Longhi you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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