Don't Race Out To Buy S.C. Bermas S.A. (BVB:BRM) Just Because It's Going Ex-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 S.C. Bermas S.A. (BVB:BRM) is about to go ex-dividend in just 4 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase S.C. Bermas' shares before the 17th of July in order to receive the dividend, which the company will pay on the 10th of August.
The company's next dividend payment will be RON00.07 per share, on the back of last year when the company paid a total of RON0.065 to shareholders. Last year's total dividend payments show that S.C. Bermas has a trailing yield of 2.9% on the current share price of RON02.26. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are 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. S.C. Bermas distributed an unsustainably high 134% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's good to see that while S.C. Bermas's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
See our latest analysis for S.C. Bermas
Click here to see how much of its profit S.C. Bermas paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see S.C. Bermas's earnings per share have dropped 8.9% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. S.C. Bermas has delivered an average of 0.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Has S.C. Bermas got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. Worse, S.C. Bermas's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of S.C. Bermas.
So if you're still interested in S.C. Bermas despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 6 warning signs for S.C. Bermas that we strongly recommend you have a look at before investing in the company.
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.