Should Income Investors Look At Esprinet S.p.A. (BIT:PRT) Before Its Ex-Dividend?

By
Simply Wall St
Published
April 21, 2022
BIT:PRT
Source: Shutterstock

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 Esprinet S.p.A. (BIT:PRT) is about to go ex-dividend in just three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Esprinet's shares on or after the 25th of April will not receive the dividend, which will be paid on the 27th of April.

The company's upcoming dividend is €0.54 a share, following on from the last 12 months, when the company distributed a total of €0.54 per share to shareholders. Looking at the last 12 months of distributions, Esprinet has a trailing yield of approximately 5.6% on its current stock price of €9.665. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Esprinet has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Esprinet

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. Esprinet paid out 61% 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. Esprinet paid out more free cash flow than it generated - 172%, 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.

Esprinet does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Esprinet 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 Esprinet 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.

historic-dividend
BIT:PRT Historic Dividend April 21st 2022

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. Fortunately for readers, Esprinet's earnings per share have been growing at 12% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Esprinet has lifted its dividend by approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has Esprinet got what it takes to maintain its dividend payments? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. So, you might think that Esprinet buying back stock, growing its EPS, and retaining profits within its business is a good combination. However, we note with some concern that it paid out 172% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. In summary, while it has some positive characteristics, we're not inclined to race out and buy Esprinet today.

So if you want to do more digging on Esprinet, you'll find it worthwhile knowing the risks that this stock faces. For example - Esprinet has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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