Is It Smart To Buy Farmaceutica REMEDIA S.A. (BVB:RMAH) Before It Goes Ex-Dividend?

Farmaceutica REMEDIA S.A. (BVB:RMAH) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Thus, you can purchase Farmaceutica REMEDIA's shares before the 5th of September in order to receive the dividend, which the company will pay on the 21st of September.

The company's next dividend payment will be RON0.05 per share, on the back of last year when the company paid a total of RON0.05 to shareholders. Looking at the last 12 months of distributions, Farmaceutica REMEDIA has a trailing yield of approximately 7.2% on its current stock price of RON0.695. 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.

See our latest analysis for Farmaceutica REMEDIA

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. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Farmaceutica REMEDIA paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Farmaceutica REMEDIA's earnings per share have risen 12% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Farmaceutica REMEDIA has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Farmaceutica REMEDIA for the upcoming dividend? Farmaceutica REMEDIA's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Farmaceutica REMEDIA looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Farmaceutica REMEDIA is facing. Case in point: We've spotted 2 warning signs for Farmaceutica REMEDIA you should be aware of.

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.