Don't Race Out To Buy Alpha Real Estate Services S.A. (ATH:ASTAK) Just Because It's Going Ex-Dividend
Readers hoping to buy Alpha Real Estate Services S.A. (ATH:ASTAK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Alpha Real Estate Services' shares before the 22nd of July in order to receive the dividend, which the company will pay on the 29th of July.
The company's upcoming dividend is €0.50 a share, following on from the last 12 months, when the company distributed a total of €0.50 per share to shareholders. Looking at the last 12 months of distributions, Alpha Real Estate Services has a trailing yield of approximately 6.2% on its current stock price of €8.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Alpha Real Estate Services can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Alpha Real Estate Services paid out 100% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Alpha Real Estate Services generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 298% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Alpha Real Estate Services 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.
Alpha Real Estate Services 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.
Cash is slightly more important than profit from a dividend perspective, but given Alpha Real Estate Services's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
See our latest analysis for Alpha Real Estate Services
Click here to see how much of its profit Alpha Real Estate Services 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. 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 Alpha Real Estate Services's earnings per share have risen 16% per annum over the last five years. It's not encouraging to see Alpha Real Estate Services paying out basically all of its earnings and cashflow to shareholders. We're glad that earnings are growing rapidly, but we're wary of the company stretching itself financially.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Alpha Real Estate Services has seen its dividend decline 38% per annum on average over the past four years, which is not great to see. Alpha Real Estate Services is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Should investors buy Alpha Real Estate Services for the upcoming dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Alpha Real Estate Services.
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 Alpha Real Estate Services. In terms of investment risks, we've identified 2 warning signs with Alpha Real Estate Services and understanding them should be part of your investment process.
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.