Do These 3 Checks Before Buying BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) For Its 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 BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) is about to go ex-dividend in just four 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 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. Thus, you can purchase BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' shares before the 22nd of October in order to receive the dividend, which the company will pay on the 20th of November.
The company's next dividend payment will be R$0.3012 per share, and in the last 12 months, the company paid a total of R$0.30 per share. Based on the last year's worth of payments, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has a trailing yield of 1.6% on the current stock price of R$18.43. If you buy this business for its dividend, you should have an idea of whether BrasilAgro - Companhia Brasileira de Propriedades Agrícolas's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If BrasilAgro - Companhia Brasileira de Propriedades Agrícolas didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas paid out more free cash flow than it generated - 132%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
View our latest analysis for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. BrasilAgro - Companhia Brasileira de Propriedades Agrícolas reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has lifted its dividend by approximately 5.3% a year on average.
The Bottom Line
From a dividend perspective, should investors buy or avoid BrasilAgro - Companhia Brasileira de Propriedades Agrícolas? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
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 BrasilAgro - Companhia Brasileira de Propriedades Agrícolas. Our analysis shows 1 warning sign for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas and you should be aware of it before buying any shares.
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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.