Should Income Investors Look At Banca Farmafactoring S.p.A. (BIT:BFF) Before Its Ex-Dividend?

Banca Farmafactoring S.p.A. (BIT:BFF) stock is about to trade ex-dividend in three days. You can purchase shares before the 1st of February in order to receive the dividend, which the company will pay on the 3rd of February.

Banca Farmafactoring's upcoming dividend is €0.073 a share, following on from the last 12 months, when the company distributed a total of €0.073 per share to shareholders. Calculating the last year's worth of payments shows that Banca Farmafactoring has a trailing yield of 1.6% on the current share price of €4.58. If you buy this business for its dividend, you should have an idea of whether Banca Farmafactoring's dividend is reliable and sustainable. So we need to investigate whether Banca Farmafactoring can afford its dividend, and if the dividend could grow.

See our latest analysis for Banca Farmafactoring

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Banca Farmafactoring paid out just 14% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Banca Farmafactoring's earnings per share have dropped 6.5% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Banca Farmafactoring's dividend payments per share have declined at 47% per year on average over the past three years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Should investors buy Banca Farmafactoring for the upcoming dividend? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

However if you're still interested in Banca Farmafactoring as a potential investment, you should definitely consider some of the risks involved with Banca Farmafactoring. For example, Banca Farmafactoring has 2 warning signs (and 1 which can't be ignored) we think 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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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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