It Might Not Be A Great Idea To Buy Vantea SMART S.p.A. (BIT:VNT) For Its Next Dividend

Vantea SMART S.p.A. (BIT:VNT) is about to trade ex-dividend in the next 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Vantea SMART's shares before the 10th of June to receive the dividend, which will be paid on the 12th of June.

The company's next dividend payment will be €0.05 per share, and in the last 12 months, the company paid a total of €0.05 per share. Based on the last year's worth of payments, Vantea SMART stock has a trailing yield of around 2.4% on the current share price of €2.11. If you buy this business for its dividend, you should have an idea of whether Vantea SMART's dividend is reliable and sustainable. So we need to investigate whether Vantea SMART can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Vantea SMART

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. Last year Vantea SMART paid out 108% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. The good news is it paid out just 12% of its free cash flow in the last year.

It's good to see that while Vantea SMART's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Vantea SMART's earnings per share have dropped 26% a year over the past three years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vantea SMART has delivered an average of 36% per year annual increase in its dividend, based on the past three years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Vantea SMART is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

From a dividend perspective, should investors buy or avoid Vantea SMART? It's never great to see earnings per share declining, especially when a company is paying out 108% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of Vantea SMART don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 4 warning signs for Vantea SMART (1 is a bit concerning!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.