Why You Might Be Interested In Rainbow Tours S.A. (WSE:RBW) For Its Upcoming Dividend

Rainbow Tours S.A. (WSE:RBW) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Rainbow Tours' shares on or after the 3rd of July will not receive the dividend, which will be paid on the 11th of July.

The company's upcoming dividend is zł7.67 a share, following on from the last 12 months, when the company distributed a total of zł11.00 per share to shareholders. Looking at the last 12 months of distributions, Rainbow Tours has a trailing yield of approximately 7.9% on its current stock price of zł139.40. If you buy this business for its dividend, you should have an idea of whether Rainbow Tours's dividend is reliable and sustainable. So we need to investigate whether Rainbow Tours can afford its dividend, and if the dividend could grow.

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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. Rainbow Tours paid out 53% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 33% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Rainbow Tours

Click here to see how much of its profit Rainbow Tours paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Rainbow Tours has grown its earnings rapidly, up 60% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Rainbow Tours has delivered 30% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Is Rainbow Tours an attractive dividend stock, or better left on the shelf? We like Rainbow Tours's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about Rainbow Tours, and we would prioritise taking a closer look at it.

While it's tempting to invest in Rainbow Tours for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Rainbow Tours that we recommend you consider before investing in the business.

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.