Industria de Diseño Textil, S.A. (BME:ITX) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 31st of October to receive the dividend, which will be paid on the 4th of November.
Industria de Diseño Textil's next dividend payment will be €0.4 per share. Last year, in total, the company distributed €0.9 to shareholders. Calculating the last year's worth of payments shows that Industria de Diseño Textil has a trailing yield of 3.1% on the current share price of €28.28. 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 Industria de Diseño Textil can afford its dividend, and if the dividend could grow.
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. Industria de Diseño Textil paid out 57% of its earnings to investors last year, a normal payout level for most businesses. 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 distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Industria de Diseño Textil, with earnings per share up 8.6% on average over the last five years. Decent historical earnings per share growth suggests Industria de Diseño Textil has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
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, Industria de Diseño Textil has increased its dividend at approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Industria de Diseño Textil an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Industria de Diseño Textil paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused about Industria de Diseño Textil from a dividend perspective.
Wondering what the future holds for Industria de Diseño Textil? See what the 24 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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