Dividend Investors: Don't Be Too Quick To Buy Empresa Eléctrica Pehuenche S.A. (SNSE:PEHUENCHE) For Its Upcoming Dividend
It looks like Empresa Eléctrica Pehuenche S.A. (SNSE:PEHUENCHE) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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. 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. Meaning, you will need to purchase Empresa Eléctrica Pehuenche's shares before the 12th of January to receive the dividend, which will be paid on the 16th of January.
The company's next dividend payment will be US$0.058592 per share. Last year, in total, the company distributed US$0.27 to shareholders. Looking at the last 12 months of distributions, Empresa Eléctrica Pehuenche has a trailing yield of approximately 8.6% on its current stock price of CL$2799.30. If you buy this business for its dividend, you should have an idea of whether Empresa Eléctrica Pehuenche's dividend is reliable and sustainable. As a result, readers should always check whether Empresa Eléctrica Pehuenche has been able to grow its dividends, or if the dividend might be cut.
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 Pehuenche distributed an unsustainably high 119% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 106% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
As Empresa Eléctrica Pehuenche'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 Empresa Eléctrica Pehuenche
Click here to see how much of its profit Empresa Eléctrica Pehuenche 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 Empresa Eléctrica Pehuenche earnings per share are up 4.5% per annum over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Empresa Eléctrica Pehuenche's dividend payments per share have declined at 2.0% per year on average over the past 10 years, which is uninspiring.
The Bottom Line
Has Empresa Eléctrica Pehuenche got what it takes to maintain its dividend payments? Empresa Eléctrica Pehuenche is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
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 Empresa Eléctrica Pehuenche. Case in point: We've spotted 1 warning sign for Empresa Eléctrica Pehuenche 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.