Don't Race Out To Buy The Navigator Company, S.A. (ELI:NVG) Just Because It's Going Ex-Dividend

The Navigator Company, S.A. (ELI:NVG) stock is about to trade ex-dividend in 4 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Navigator Company's shares before the 7th of June in order to be eligible for the dividend, which will be paid on the 11th of June.

The company's upcoming dividend is €0.21091 a share, following on from the last 12 months, when the company distributed a total of €0.21 per share to shareholders. Based on the last year's worth of payments, Navigator Company stock has a trailing yield of around 5.3% on the current share price of €4.014. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Navigator Company

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Navigator Company paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Navigator Company generated enough free cash flow to afford its dividend. Navigator Company paid out more free cash flow than it generated - 119%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Navigator Company's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Navigator Company to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Navigator Company, with earnings per share up 3.7% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Navigator Company has seen its dividend decline 0.5% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Should investors buy Navigator Company for the upcoming dividend? Earnings per share have grown somewhat, although Navigator Company paid out over half its profits and the dividend was not well covered by free cash flow. It's not that we think Navigator Company is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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 Navigator Company. For instance, we've identified 2 warning signs for Navigator Company (1 is a bit unpleasant) you should be aware of.

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.