There's A Lot To Like About Sonae SGPS' (ELI:SON) Upcoming €0.05639 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sonae, SGPS, S.A. (ELI:SON) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. This means that investors who purchase Sonae SGPS' shares on or after the 14th of May will not receive the dividend, which will be paid on the 16th of May.

The company's next dividend payment will be €0.05639 per share, on the back of last year when the company paid a total of €0.056 to shareholders. Looking at the last 12 months of distributions, Sonae SGPS has a trailing yield of approximately 5.8% on its current stock price of €0.974. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Sonae SGPS

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. Fortunately Sonae SGPS's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Sonae SGPS generated enough free cash flow to afford its dividend. It paid out more than half (66%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Sonae 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.

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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Sonae SGPS's earnings per share have been growing at 11% a year for the past five years. Sonae SGPS has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sonae SGPS has delivered 5.5% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Sonae SGPS is keeping back more of its profits to grow the business.

The Bottom Line

Is Sonae SGPS worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Sonae SGPS paid out less than half its earnings and a bit over half its free cash flow. Sonae SGPS looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Sonae SGPS has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for Sonae SGPS you should know about.

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.