It Might Not Be A Great Idea To Buy Equita Group S.p.A. (BIT:EQUI) For Its Next Dividend

Equita Group S.p.A. (BIT:EQUI) is about to trade ex-dividend in the next 3 days. 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, Equita Group investors that purchase the stock on or after the 18th of November will not receive the dividend, which will be paid on the 20th of November.

The company's next dividend payment will be €0.15 per share, and in the last 12 months, the company paid a total of €0.35 per share. Based on the last year's worth of payments, Equita Group stock has a trailing yield of around 8.4% on the current share price of €4.15. 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 investigate whether Equita Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Equita Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Equita Group paid out 103% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit Equita Group paid out over the last 12 months.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Equita Group earnings per share are up 5.9% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, seven years ago, Equita Group has lifted its dividend by approximately 6.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Equita Group? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 103% of last year's earnings. Equita Group doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Although, if you're still interested in Equita Group and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 2 warning signs with Equita Group (at least 1 which is potentially serious), and understanding these should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.