Read This Before Considering Ibersol, S.G.P.S., S.A. (ELI:IBS) For Its Upcoming €0.50 Dividend

Ibersol, S.G.P.S., S.A. (ELI:IBS) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Ibersol S.G.P.S investors that purchase the stock on or after the 17th of June will not receive the dividend, which will be paid on the 19th of June.

The company's next dividend payment will be €0.50 per share, and in the last 12 months, the company paid a total of €0.14 per share. Last year's total dividend payments show that Ibersol S.G.P.S has a trailing yield of 1.8% on the current share price of €7.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Ibersol S.G.P.S

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. Fortunately Ibersol S.G.P.S's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Ibersol S.G.P.S generated enough free cash flow to afford its dividend. It paid out more than half (73%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Ibersol S.G.P.S'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?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Ibersol S.G.P.S's 17% per annum decline in earnings in 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. In the last 10 years, Ibersol S.G.P.S has lifted its dividend by approximately 15% a year on average.

To Sum It Up

Has Ibersol S.G.P.S got what it takes to maintain its dividend payments? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. To summarise, Ibersol S.G.P.S looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that being said, if dividends aren't your biggest concern with Ibersol S.G.P.S, you should know about the other risks facing this business. Our analysis shows 2 warning signs for Ibersol S.G.P.S and you should be aware of these before buying any shares.

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.