Here's What We Like About Profarma Distribuidora de Produtos Farmacêuticos' (BVMF:PFRM3) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Profarma Distribuidora de Produtos Farmacêuticos S.A. (BVMF:PFRM3) is about to go ex-dividend in just four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Profarma Distribuidora de Produtos Farmacêuticos' shares on or after the 2nd of January will not receive the dividend, which will be paid on the 15th of January.

The company's upcoming dividend is R$0.3180802 a share, following on from the last 12 months, when the company distributed a total of R$0.57 per share to shareholders. Based on the last year's worth of payments, Profarma Distribuidora de Produtos Farmacêuticos has a trailing yield of 6.3% on the current stock price of R$9.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Profarma Distribuidora de Produtos Farmacêuticos has been able to grow its dividends, or if the dividend might be cut.

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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. Profarma Distribuidora de Produtos Farmacêuticos is paying out an acceptable 61% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Profarma Distribuidora de Produtos Farmacêuticos generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last year.

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.

See our latest analysis for Profarma Distribuidora de Produtos Farmacêuticos

Click here to see how much of its profit Profarma Distribuidora de Produtos Farmacêuticos 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. That's why it's comforting to see Profarma Distribuidora de Produtos Farmacêuticos's earnings have been skyrocketing, up 57% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Profarma Distribuidora de Produtos Farmacêuticos has delivered an average of 21% per year annual increase in its dividend, based on the past four years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Is Profarma Distribuidora de Produtos Farmacêuticos worth buying for its dividend? We like Profarma Distribuidora de Produtos Farmacêuticos's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Profarma Distribuidora de Produtos Farmacêuticos has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Profarma Distribuidora de Produtos Farmacêuticos and you should be aware of them 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.