Forbuild SA (WSE:BTX) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day 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 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. Accordingly, Forbuild investors that purchase the stock on or after the 24th of June will not receive the dividend, which will be paid on the 2nd of July.
The company's upcoming dividend is zł0.18 a share, following on from the last 12 months, when the company distributed a total of zł0.18 per share to shareholders. Based on the last year's worth of payments, Forbuild stock has a trailing yield of around 4.2% on the current share price of PLN4.3. 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.
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. Forbuild paid out a comfortable 44% of its profit last year. A useful secondary check can be to evaluate whether Forbuild generated enough free cash flow to afford its dividend. It paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Forbuild's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. It's encouraging to see Forbuild has grown its earnings rapidly, up 22% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Forbuild's dividend payments per share have declined at 5.1% per year on average over the past two years, which is uninspiring. Forbuild is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
From a dividend perspective, should investors buy or avoid Forbuild? Earnings per share have grown at a nice rate in recent times and over the last year, Forbuild paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Forbuild, and we would prioritise taking a closer look at it.
In light of that, while Forbuild has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for Forbuild and you should be aware of them before buying any shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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