Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) Pays A €0.57 Dividend In Just Three Days

It looks like Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) is about to go ex-dividend in the next three 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, Recordati Industria Chimica e Farmaceutica investors that purchase the stock on or after the 20th of November will not receive the dividend, which will be paid on the 22nd of November.

The company's next dividend payment will be €0.57 per share, and in the last 12 months, the company paid a total of €1.15 per share. Looking at the last 12 months of distributions, Recordati Industria Chimica e Farmaceutica has a trailing yield of approximately 2.6% on its current stock price of €44.98. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Recordati Industria Chimica e Farmaceutica

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Recordati Industria Chimica e Farmaceutica paid out a comfortable 33% of its profit last year. 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. Recordati Industria Chimica e Farmaceutica paid out more free cash flow than it generated - 178%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Recordati Industria Chimica e Farmaceutica's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Recordati Industria Chimica e Farmaceutica 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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Recordati Industria Chimica e Farmaceutica, with earnings per share up 5.5% on average 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. In the last 10 years, Recordati Industria Chimica e Farmaceutica has lifted its dividend by approximately 14% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Recordati Industria Chimica e Farmaceutica? Recordati Industria Chimica e Farmaceutica 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. In summary, while it has some positive characteristics, we're not inclined to race out and buy Recordati Industria Chimica e Farmaceutica today.

If you're not too concerned about Recordati Industria Chimica e Farmaceutica's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Case in point: We've spotted 2 warning signs for Recordati Industria Chimica e Farmaceutica you should be aware of.

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.