Should Income Investors Look At Desarrollos Especiales de Sistemas de Anclaje, S.A. (BME:DESA) Before Its Ex-Dividend?

Desarrollos Especiales de Sistemas de Anclaje, S.A. (BME:DESA) stock is about to trade ex-dividend in three 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Desarrollos Especiales de Sistemas de Anclaje investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 31st of December.

The company's upcoming dividend is €0.2275514 a share, following on from the last 12 months, when the company distributed a total of €1.12 per share to shareholders. Looking at the last 12 months of distributions, Desarrollos Especiales de Sistemas de Anclaje has a trailing yield of approximately 5.9% on its current stock price of €19.00. 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.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Desarrollos Especiales de Sistemas de Anclaje paying out a modest 38% of its 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. It paid out an unsustainably high 236% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Desarrollos Especiales de Sistemas de Anclaje intends to continue funding this dividend, or if it could be forced to cut the payment.

While Desarrollos Especiales de Sistemas de Anclaje's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Desarrollos Especiales de Sistemas de Anclaje to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Desarrollos Especiales de Sistemas de Anclaje

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Desarrollos Especiales de Sistemas de Anclaje's earnings have been skyrocketing, up 27% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Desarrollos Especiales de Sistemas de Anclaje has delivered an average of 12% per year annual increase in its dividend, based on the past six years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Desarrollos Especiales de Sistemas de Anclaje got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's hard to get excited about Desarrollos Especiales de Sistemas de Anclaje from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 3 warning signs for Desarrollos Especiales de Sistemas de Anclaje you should be aware of.

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.