Do These 3 Checks Before Buying Flowsparks NV (EBR:FLSP) For Its Upcoming Dividend

It looks like Flowsparks NV (EBR:FLSP) is about to go ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Flowsparks' shares on or after the 29th of September will not receive the dividend, which will be paid on the 1st of October.

The company's next dividend payment will be €0.70 per share. Last year, in total, the company distributed €0.65 to shareholders. Calculating the last year's worth of payments shows that Flowsparks has a trailing yield of 4.8% on the current share price of €21.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Flowsparks can afford its dividend, and if the dividend could grow.

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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. Flowsparks distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Flowsparks generated enough free cash flow to afford its dividend. The company paid out 95% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Cash is slightly more important than profit from a dividend perspective, but given Flowsparks's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Check out our latest analysis for Flowsparks

Click here to see how much of its profit Flowsparks 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Flowsparks earnings per share are up 7.2% per annum over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we're comfortable with over the long term.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Flowsparks's dividend payments are broadly unchanged compared to where they were two years ago.

To Sum It Up

Is Flowsparks worth buying for its dividend? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. Bottom line: Flowsparks has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Flowsparks don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 3 warning signs for Flowsparks (2 make us uncomfortable!) that deserve your attention before investing in the shares.

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.