Hera S.p.A. (BIT:HER) Is About To Go Ex-Dividend, And It Pays A 3.6% Yield

Hera S.p.A. (BIT:HER) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. Thus, you can purchase Hera's shares before the 23rd of June in order to receive the dividend, which the company will pay on the 25th of June.

The company's upcoming dividend is €0.15 a share, following on from the last 12 months, when the company distributed a total of €0.15 per share to shareholders. Calculating the last year's worth of payments shows that Hera has a trailing yield of 3.6% on the current share price of €4.222. If you buy this business for its dividend, you should have an idea of whether Hera's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Fortunately Hera's payout ratio is modest, at just 43% of profit. 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. Over the past year it paid out 123% of its free cash flow as dividends, which is uncomfortably 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 Hera'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 Hera to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Hera

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Hera earnings per share are up 6.5% per annum 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 past 10 years, Hera has increased its dividend at approximately 5.2% 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.

The Bottom Line

Should investors buy Hera for the upcoming dividend? Hera delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 123% of its cash flow over the last year, which is a mediocre outcome. All things considered, we are not particularly enthused about Hera from a dividend perspective.

If you're not too concerned about Hera's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To that end, you should learn about the 2 warning signs we've spotted with Hera (including 1 which is potentially serious).

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.