Be Sure To Check Out Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) Before It Goes Ex-Dividend
It looks like Empresa Eléctrica de Magallanes S.A. (SNSE:EDELMAG) is about to go ex-dividend in the next four days. 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. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Empresa Eléctrica de Magallanes' shares on or after the 12th of December will not receive the dividend, which will be paid on the 17th of December.
The company's next dividend payment will be CL$165.00 per share. Last year, in total, the company distributed CL$432 to shareholders. Last year's total dividend payments show that Empresa Eléctrica de Magallanes has a trailing yield of 8.1% on the current share price of CL$5365.00. 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.
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. Empresa Eléctrica de Magallanes has a low and conservative payout ratio of just 12% of its income after tax. A useful secondary check can be to evaluate whether Empresa Eléctrica de Magallanes generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.
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.
View our latest analysis for Empresa Eléctrica de Magallanes
Click here to see how much of its profit Empresa Eléctrica de Magallanes 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Empresa Eléctrica de Magallanes earnings per share are up 8.7% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Empresa Eléctrica de Magallanes has delivered an average of 4.4% 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
From a dividend perspective, should investors buy or avoid Empresa Eléctrica de Magallanes? Earnings per share growth has been growing somewhat, and Empresa Eléctrica de Magallanes is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Empresa Eléctrica de Magallanes is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Empresa Eléctrica de Magallanes, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 3 warning signs for Empresa Eléctrica de Magallanes and you should be aware of these before buying any shares.
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.