Should Income Investors Look At Farmaceutica REMEDIA S.A. (BVB:RMAH) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Farmaceutica REMEDIA S.A. (BVB:RMAH) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Farmaceutica REMEDIA's shares on or after the 11th of September will not receive the dividend, which will be paid on the 30th of September.

The company's upcoming dividend is RON00.05 a share, following on from the last 12 months, when the company distributed a total of RON0.05 per share to shareholders. Looking at the last 12 months of distributions, Farmaceutica REMEDIA has a trailing yield of approximately 6.3% on its current stock price of RON00.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Farmaceutica REMEDIA can afford its dividend, and if the dividend could grow.

View our latest analysis for Farmaceutica REMEDIA

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. Farmaceutica REMEDIA distributed an unsustainably high 147% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Farmaceutica REMEDIA generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

It's good to see that while Farmaceutica REMEDIA's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Farmaceutica REMEDIA earnings per share are up 5.8% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Farmaceutica REMEDIA has delivered an average of 14% per year annual increase in its dividend, based on the past nine 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.

Final Takeaway

Has Farmaceutica REMEDIA got what it takes to maintain its dividend payments? Farmaceutica REMEDIA has been steadily growing its earnings per share, and it is paying out just 17% of its cash flow but an uncomfortably high 147% of its income. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in Farmaceutica REMEDIA as a potential investment, you should definitely consider some of the risks involved with Farmaceutica REMEDIA. For instance, we've identified 5 warning signs for Farmaceutica REMEDIA (1 makes us a bit uncomfortable) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.