Do These 3 Checks Before Buying Sifi Cluj Retail SA (BVB:ARCU) For Its Upcoming Dividend

Readers hoping to buy Sifi Cluj Retail SA (BVB:ARCU) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Sifi Cluj Retail's shares before the 25th of June in order to receive the dividend, which the company will pay on the 7th of July.

The company's next dividend payment will be RON00.22 per share. Last year, in total, the company distributed RON0.31 to shareholders. Based on the last year's worth of payments, Sifi Cluj Retail stock has a trailing yield of around 6.7% on the current share price of RON04.64. 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.

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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. Sifi Cluj Retail paid out 132% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Sifi Cluj Retail generated enough free cash flow to afford its dividend. It paid out an unsustainably high 203% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Sifi Cluj Retail is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Sifi Cluj Retail does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

As Sifi Cluj Retail's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

View our latest analysis for Sifi Cluj Retail

Click here to see how much of its profit Sifi Cluj Retail paid out over the last 12 months.

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 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 Sifi Cluj Retail's earnings per share have risen 10% per annum over the last five years. It's great to see earnings per share growing rapidly, but we're disturbed to see the company paid out 132% of its earnings last year. We're wary of fast-growing companies flaming out by over-committing themselves financially, and consider this a yellow flag.

Given that Sifi Cluj Retail has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Has Sifi Cluj Retail got what it takes to maintain its dividend payments? While it's nice to see earnings per share growing, we're curious about how Sifi Cluj Retail intends to continue growing, or maintain the dividend in a downturn given that it's paying out such a high percentage of its earnings and cashflow. Bottom line: Sifi Cluj Retail has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

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 Sifi Cluj Retail. Our analysis shows 5 warning signs for Sifi Cluj Retail that we strongly recommend you have a look at before investing in the company.

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.