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Here's Why We're Wary Of Buying Banco Latinoamericano de Comercio Exterior, S.A's (NYSE:BLX) For Its Upcoming Dividend

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Simply Wall St
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Banco Latinoamericano de Comercio Exterior, S.A (NYSE:BLX) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 28th of October will not receive the dividend, which will be paid on the 19th of November.

Banco Latinoamericano de Comercio Exterior's next dividend payment will be US$0.4 per share. Last year, in total, the company distributed US$1.5 to shareholders. Last year's total dividend payments show that Banco Latinoamericano de Comercio Exterior has a trailing yield of 7.5% on the current share price of $20.52. If you buy this business for its dividend, you should have an idea of whether Banco Latinoamericano de Comercio Exterior's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Banco Latinoamericano de Comercio Exterior

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Banco Latinoamericano de Comercio Exterior is paying out an acceptable 71% of its profit, a common payout level among most companies.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit Banco Latinoamericano de Comercio Exterior paid out over the last 12 months.

NYSE:BLX Historical Dividend Yield, October 23rd 2019
NYSE:BLX Historical Dividend Yield, October 23rd 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Banco Latinoamericano de Comercio Exterior's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Banco Latinoamericano de Comercio Exterior has increased its dividend at approximately 5.8% a year on average.

Final Takeaway

Has Banco Latinoamericano de Comercio Exterior got what it takes to maintain its dividend payments? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. Banco Latinoamericano de Comercio Exterior doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Want to learn more about Banco Latinoamericano de Comercio Exterior? Here's a visualisation of its historical rate of revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.