Here's What We Like About Elica's (BIT:ELC) Upcoming Dividend

Elica S.p.A. (BIT:ELC) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. This means that investors who purchase Elica's shares on or after the 1st of July will not receive the dividend, which will be paid on the 3rd of July.

The company's upcoming dividend is €0.05 a share, following on from the last 12 months, when the company distributed a total of €0.05 per share to shareholders. Based on the last year's worth of payments, Elica has a trailing yield of 2.9% on the current stock price of €1.745. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Elica can afford its dividend, and if the dividend could grow.

See our latest analysis for Elica

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Elica's payout ratio is modest, at just 32% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 33% 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.

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

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. That's why it's comforting to see Elica's earnings have been skyrocketing, up 44% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Elica has lifted its dividend by approximately 6.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Elica got what it takes to maintain its dividend payments? Elica has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Elica has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Elica and understanding them should be part of your investment process.

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