Why You Might Be Interested In Fabryka Farb i Lakierów Sniezka SA (WSE:SKA) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fabryka Farb i Lakierów Sniezka SA (WSE:SKA) is about to trade ex-dividend in the next 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Fabryka Farb i Lakierów Sniezka's shares before the 14th of May in order to receive the dividend, which the company will pay on the 29th of May.

The company's next dividend payment will be zł3.17 per share, on the back of last year when the company paid a total of zł2.00 to shareholders. Last year's total dividend payments show that Fabryka Farb i Lakierów Sniezka has a trailing yield of 2.2% on the current share price of zł90.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Fabryka Farb i Lakierów Sniezka

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. That's why it's good to see Fabryka Farb i Lakierów Sniezka paying out a modest 34% of its earnings. 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 26% of its free cash flow in the past year.

It's positive to see that Fabryka Farb i Lakierów Sniezka'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 how much of its profit Fabryka Farb i Lakierów Sniezka paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Fabryka Farb i Lakierów Sniezka, with earnings per share up 4.7% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Fabryka Farb i Lakierów Sniezka's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. Fabryka Farb i Lakierów Sniezka 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.

The Bottom Line

Is Fabryka Farb i Lakierów Sniezka an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Fabryka Farb i Lakierów Sniezka is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Fabryka Farb i Lakierów Sniezka is halfway there. There's a lot to like about Fabryka Farb i Lakierów Sniezka, and we would prioritise taking a closer look at it.

So while Fabryka Farb i Lakierów Sniezka looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 2 warning signs we've spotted with Fabryka Farb i Lakierów Sniezka (including 1 which is potentially serious).

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.