It looks like Implenia AG (VTX:IMPN) is about to go ex-dividend in the next 3 days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 1st of April.
Implenia's next dividend payment will be CHF0.75 per share. Last year, in total, the company distributed CHF0.75 to shareholders. Based on the last year's worth of payments, Implenia has a trailing yield of 2.2% on the current stock price of CHF33.8. If you buy this business for its dividend, you should have an idea of whether Implenia's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Fortunately Implenia's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Implenia generated enough free cash flow to afford its dividend. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.
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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Implenia's earnings per share have fallen at approximately 16% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Implenia has delivered an average of 0.7% per year annual increase in its dividend, based on the past ten years of dividend payments.
To Sum It Up
Should investors buy Implenia for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So while Implenia looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 3 warning signs for Implenia and you should be aware of them before buying any shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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