Why It Might Not Make Sense To Buy Develia S.A. (WSE:DVL) For Its Upcoming Dividend

By
Simply Wall St
Published
July 01, 2021
WSE:DVL
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Develia S.A. (WSE:DVL) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Meaning, you will need to purchase Develia's shares before the 5th of July to receive the dividend, which will be paid on the 13th of July.

The company's upcoming dividend is zł0.17 a share, following on from the last 12 months, when the company distributed a total of zł0.17 per share to shareholders. Last year's total dividend payments show that Develia has a trailing yield of 5.1% on the current share price of PLN3.35. 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 Develia

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Develia paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Develia didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 50% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
WSE:DVL Historic Dividend July 1st 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Develia reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Develia's dividend payments per share have declined at 1.1% per year on average over the past five years, which is uninspiring.

We update our analysis on Develia every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Should investors buy Develia for the upcoming dividend? It's hard to get used to Develia paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Develia has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Develia. For example, we've found 3 warning signs for Develia (1 is potentially serious!) that deserve your attention before investing in the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.