Don't Buy Infrastrutture Wireless Italiane S.p.A. (BIT:INW) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Infrastrutture Wireless Italiane S.p.A. (BIT:INW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Infrastrutture Wireless Italiane investors that purchase the stock on or after the 19th of May will not receive the dividend, which will be paid on the 21st of May.

The company's next dividend payment will be €0.5156 per share. Last year, in total, the company distributed €0.52 to shareholders. Based on the last year's worth of payments, Infrastrutture Wireless Italiane has a trailing yield of 5.0% on the current stock price of €10.48. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Infrastrutture Wireless Italiane distributed an unsustainably high 138% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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 96% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

As Infrastrutture Wireless Italiane's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

See our latest analysis for Infrastrutture Wireless Italiane

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Infrastrutture Wireless Italiane's earnings per share have been growing at 10% a year for the past five years. It's not encouraging to see Infrastrutture Wireless Italiane paying out basically all of its earnings and cashflow to shareholders. We're glad that earnings are growing rapidly, but we're wary of the company stretching itself financially.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Infrastrutture Wireless Italiane has delivered 21% dividend growth per year on average over the past nine years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Has Infrastrutture Wireless Italiane got what it takes to maintain its dividend payments? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. Bottom line: Infrastrutture Wireless Italiane has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Infrastrutture Wireless Italiane and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for Infrastrutture Wireless Italiane (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

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.