We Wouldn't Be Too Quick To Buy Banco Latinoamericano de Comercio Exterior, S.A (NYSE:BLX) Before It Goes Ex-Dividend
It looks like Banco Latinoamericano de Comercio Exterior, S.A (NYSE:BLX) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Banco Latinoamericano de Comercio Exterior's shares before the 4th of March in order to be eligible for the dividend, which will be paid on the 22nd of March.
The company's upcoming dividend is US$0.25 a share, following on from the last 12 months, when the company distributed a total of US$1.00 per share to shareholders. Calculating the last year's worth of payments shows that Banco Latinoamericano de Comercio Exterior has a trailing yield of 6.5% on the current share price of $15.33. 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. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out 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 paid out 62% of its earnings to investors last year, a normal payout level for most businesses. Banco Latinoamericano de Comercio Exterior paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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 Banco Latinoamericano de Comercio Exterior's earnings per share have dropped 6.6% a year over the past 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. In the last 10 years, Banco Latinoamericano de Comercio Exterior has lifted its dividend by approximately 2.3% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
From a dividend perspective, should investors buy or avoid Banco Latinoamericano de Comercio Exterior? We're not overly enthused to see Banco Latinoamericano de Comercio Exterior's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf 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 Banco Latinoamericano de Comercio Exterior. Every company has risks, and we've spotted 2 warning signs for Banco Latinoamericano de Comercio Exterior (of which 1 is significant!) you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
