Do These 3 Checks Before Buying Practic S.A. (BVB:PRBU) For Its Upcoming Dividend

Readers hoping to buy Practic S.A. (BVB:PRBU) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Practic's shares before the 14th of November in order to receive the dividend, which the company will pay on the 28th of November.

The company's upcoming dividend is RON024.62 a share, following on from the last 12 months, when the company distributed a total of RON52.68 per share to shareholders. Last year's total dividend payments show that Practic has a trailing yield of 4.5% on the current share price of RON01180.00. If you buy this business for its dividend, you should have an idea of whether Practic's dividend is reliable and sustainable. As a result, readers should always check whether Practic has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Practic

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Practic paid out 103% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Practic fortunately did generate enough cash to fund its dividend. 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 Practic 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 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 Practic, with earnings per share up 6.0% on average over the last five years.

Given that Practic 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 Practic got what it takes to maintain its dividend payments? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Practic as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for Practic that you should be aware of before investing in their shares.

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.