Should Income Investors Look At Franchi Umberto Marmi S.p.A. (BIT:FUM) Before Its Ex-Dividend?

Readers hoping to buy Franchi Umberto Marmi S.p.A. (BIT:FUM) 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 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 Franchi Umberto Marmi's shares on or after the 13th of May, you won't be eligible to receive the dividend, when it is paid on the 15th of May.

The company's next dividend payment will be €0.16 per share. Last year, in total, the company distributed €0.16 to shareholders. Looking at the last 12 months of distributions, Franchi Umberto Marmi has a trailing yield of approximately 2.7% on its current stock price of €6.00. 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 Franchi Umberto Marmi has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Franchi Umberto Marmi

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Franchi Umberto Marmi's payout ratio is modest, at just 40% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 221% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Franchi Umberto Marmi paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Franchi Umberto Marmi to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Franchi Umberto Marmi earnings per share are up 5.1% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Franchi Umberto Marmi has seen its dividend decline 20% per annum on average over the past two years, which is not great to see. Franchi Umberto Marmi is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Franchi Umberto Marmi got what it takes to maintain its dividend payments? Franchi Umberto Marmi has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. 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 not all that optimistic on its dividend prospects.

So if you want to do more digging on Franchi Umberto Marmi, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 1 warning sign for Franchi Umberto Marmi that you should be aware of before investing in their shares.

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.