It Might Not Be A Great Idea To Buy SC Foraj Sonde SA Craiova (BVB:FOSB) For Its Next Dividend

It looks like SC Foraj Sonde SA Craiova (BVB:FOSB) is about to go ex-dividend in the next four 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. Meaning, you will need to purchase SC Foraj Sonde SA Craiova's shares before the 16th of May to receive the dividend, which will be paid on the 29th of May.

The company's upcoming dividend is RON00.0092 a share, following on from the last 12 months, when the company distributed a total of RON0.014 per share to shareholders. Looking at the last 12 months of distributions, SC Foraj Sonde SA Craiova has a trailing yield of approximately 3.0% on its current stock price of RON00.47. If you buy this business for its dividend, you should have an idea of whether SC Foraj Sonde SA Craiova's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for SC Foraj Sonde SA Craiova

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. Last year SC Foraj Sonde SA Craiova paid out 95% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 50% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see how much of its profit SC Foraj Sonde SA Craiova paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SC Foraj Sonde SA Craiova's dividend payments per share have declined at 6.6% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Get our latest analysis on SC Foraj Sonde SA Craiova's balance sheet health here.

Final Takeaway

Is SC Foraj Sonde SA Craiova worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of SC Foraj Sonde SA Craiova don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 4 warning signs for SC Foraj Sonde SA Craiova 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.