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 Renta Corporación Real Estate, S.A. (BME:REN) is about to go ex-dividend in just 2 days. If you purchase the stock on or after the 13th of November, you won't be eligible to receive this dividend, when it is paid on the 15th of November.
Renta Corporación Real Estate's next dividend payment will be €0.03 per share, and in the last 12 months, the company paid a total of €0.07 per share. Based on the last year's worth of payments, Renta Corporación Real Estate stock has a trailing yield of around 2.2% on the current share price of €3.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Renta Corporación Real Estate is paying out just 8.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Renta Corporación Real Estate 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.
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. Renta Corporación Real Estate's earnings per share have plummeted approximately 43% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, two years ago, Renta Corporación Real Estate has lifted its dividend by approximately 48% a year on average.
To Sum It Up
Is Renta Corporación Real Estate an attractive dividend stock, or better left on the shelf? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Renta Corporación Real Estate is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. Bottom line: Renta Corporación Real Estate has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Want to learn more about Renta Corporación Real Estate's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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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