Don't Buy NV Bekaert SA (EBR:BEKB) For Its Next Dividend Without Doing These Checks

NV Bekaert SA (EBR:BEKB) is about to trade ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase NV Bekaert's shares on or after the 15th of May, you won't be eligible to receive the dividend, when it is paid on the 19th of May. The company's next dividend payment will be €1.365 per share. Last year, in total, the company distributed €1.95 to shareholders. Last year's total dividend payments show that NV Bekaert has a trailing yield of 4.5% on the current share price of €43.10. If you buy this business for its dividend, you should have an idea of whether NV Bekaert's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. NV Bekaert distributed an unsustainably high 147% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies. It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and NV Bekaert fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits. Check out our latest analysis for NV Bekaert Click here to see the company's payout ratio, plus analyst estimates of its future dividends. Have Earnings And Dividends Been Growing? Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. NV Bekaert's earnings per share have fallen at approximately 10% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend. Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. NV Bekaert has delivered an average of 8.7% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. NV Bekaert is already paying out 147% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future. To Sum It Up Is NV Bekaert worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out 147% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Bottom line: NV Bekaert has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors. With that in mind though, if the poor dividend characteristics of NV Bekaert don't faze you, it's worth being mindful of the risks involved with this business. For example - NV Bekaert has 3 warning signs we think you should be aware of. A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.