Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) is about to go ex-dividend in just four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. This means that investors who purchase Recordati Industria Chimica e Farmaceutica's shares on or after the 22nd of November will not receive the dividend, which will be paid on the 24th of November.
The company's next dividend payment will be €0.53 per share, and in the last 12 months, the company paid a total of €1.05 per share. Based on the last year's worth of payments, Recordati Industria Chimica e Farmaceutica has a trailing yield of 1.9% on the current stock price of €56.7. If you buy this business for its dividend, you should have an idea of whether Recordati Industria Chimica e Farmaceutica's dividend is reliable and sustainable. So we need to investigate whether Recordati Industria Chimica e Farmaceutica can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Recordati Industria Chimica e Farmaceutica paid out a comfortable 30% of its profit last year. 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. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Recordati Industria Chimica e Farmaceutica's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Recordati Industria Chimica e Farmaceutica's earnings per share have been growing at 14% a year for the past five years. Recordati Industria Chimica e Farmaceutica has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Recordati Industria Chimica e Farmaceutica has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Should investors buy Recordati Industria Chimica e Farmaceutica for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Recordati Industria Chimica e Farmaceutica, and we would prioritise taking a closer look at it.
While it's tempting to invest in Recordati Industria Chimica e Farmaceutica for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Recordati Industria Chimica e Farmaceutica and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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