Is It Worth Considering Industrie Chimiche Forestali S.p.A. (BIT:ICF) For Its Upcoming Dividend?

Industrie Chimiche Forestali S.p.A. (BIT:ICF) stock is about to trade ex-dividend in three days. The ex-dividend date is commonly two business days 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. In other words, investors can purchase Industrie Chimiche Forestali's shares before the 19th of May in order to be eligible for the dividend, which will be paid on the 21st of May.

The company's upcoming dividend is €0.20 a share, following on from the last 12 months, when the company distributed a total of €0.20 per share to shareholders. Based on the last year's worth of payments, Industrie Chimiche Forestali stock has a trailing yield of around 3.6% on the current share price of €5.60. If you buy this business for its dividend, you should have an idea of whether Industrie Chimiche Forestali's dividend is reliable and sustainable. So we need to investigate whether Industrie Chimiche Forestali can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Industrie Chimiche Forestali paid out 62% of its earnings to investors last year, a normal payout level for most businesses. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last 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.

See our latest analysis for Industrie Chimiche Forestali

Click here to see how much of its profit Industrie Chimiche Forestali paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Industrie Chimiche Forestali's earnings per share have dropped 9.0% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of 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 four years, Industrie Chimiche Forestali has lifted its dividend by approximately 9.3% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Has Industrie Chimiche Forestali got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So if you want to do more digging on Industrie Chimiche Forestali, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 1 warning sign with Industrie Chimiche Forestali 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.