Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mota-Engil, SGPS, S.A. (ELI:EGL) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Mota-Engil SGPS' shares on or after the 3rd of October, you won't be eligible to receive the dividend, when it is paid on the 5th of October.
The company's next dividend payment will be €0.017 per share. Last year, in total, the company distributed €0.052 to shareholders. Looking at the last 12 months of distributions, Mota-Engil SGPS has a trailing yield of approximately 4.8% on its current stock price of €1.086. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Mota-Engil SGPS has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Mota-Engil SGPS is paying out an acceptable 63% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Mota-Engil SGPS generated enough free cash flow to afford its dividend. Fortunately, it paid out only 32% of its free cash flow in the past year.
It's positive to see that Mota-Engil SGPS'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?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Mota-Engil SGPS's earnings per share have dropped 17% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mota-Engil SGPS has seen its dividend decline 7.3% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
To Sum It Up
Should investors buy Mota-Engil SGPS for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Mota-Engil SGPS today.
However if you're still interested in Mota-Engil SGPS as a potential investment, you should definitely consider some of the risks involved with Mota-Engil SGPS. We've identified 3 warning signs with Mota-Engil SGPS (at least 1 which is potentially serious), and understanding them should be part of your investment process.
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.