Be Sure To Check Out Rainbow Tours S.A. (WSE:RBW) Before It Goes Ex-Dividend

Rainbow Tours S.A. (WSE:RBW) stock is about to trade ex-dividend in 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Rainbow Tours' shares on or after the 27th of November, you won't be eligible to receive the dividend, when it is paid on the 5th of December.

The company's next dividend payment will be zł3.33 per share. Last year, in total, the company distributed zł6.29 to shareholders. Calculating the last year's worth of payments shows that Rainbow Tours has a trailing yield of 5.4% on the current share price of zł127.00. If you buy this business for its dividend, you should have an idea of whether Rainbow Tours's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Rainbow Tours

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 Rainbow Tours's payout ratio is modest, at just 37% 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 last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Rainbow Tours'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.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Rainbow Tours's earnings have been skyrocketing, up 95% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Rainbow Tours has increased its dividend at approximately 24% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Rainbow Tours worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Rainbow Tours looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Rainbow Tours for the dividends alone, you should always be mindful of the risks involved. For example - Rainbow Tours has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.