Interested In Racing Force's (BIT:RFG) Upcoming €0.09 Dividend? You Have Four Days Left

Readers hoping to buy Racing Force S.P.A. (BIT:RFG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Racing Force investors that purchase the stock on or after the 13th of May will not receive the dividend, which will be paid on the 15th of May.

The company's next dividend payment will be €0.09 per share. Last year, in total, the company distributed €0.09 to shareholders. Based on the last year's worth of payments, Racing Force stock has a trailing yield of around 2.3% on the current share price of €3.93. 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 Racing Force has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Racing Force

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 Racing Force's payout ratio is modest, at just 48% of profit. A useful secondary check can be to evaluate whether Racing Force generated enough free cash flow to afford its dividend. Racing Force 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.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend.

Racing Force also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, two years ago, Racing Force has lifted its dividend by approximately 13% a year on average.

To Sum It Up

Has Racing Force got what it takes to maintain its dividend payments? Earnings per share have barely grown in this time, and although Racing Force is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Racing Force as a potential investment, you should definitely consider some of the risks involved with Racing Force. Our analysis shows 3 warning signs for Racing Force that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.