Yahoo Finance We Wouldn't Be Too Quick To Buy Sociedad Química y Minera de Chile S.A. (NYSE:SQM) Before It Goes Ex-Dividend
Readers hoping to buy Sociedad Química y Minera de Chile S.A. (NYSE:SQM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 29th of April will not receive this dividend, which will be paid on the 18th of May.
Sociedad Química y Minera de Chile's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$1.06 per share to shareholders. Last year's total dividend payments show that Sociedad Química y Minera de Chile has a trailing yield of 4.9% on the current share price of $21.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Sociedad Química y Minera de Chile
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sociedad Química y Minera de Chile paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Over the last year, it paid out dividends equivalent to 251% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Sociedad Química y Minera de Chile intends to continue funding this dividend, or if it could be forced to the payment.
Cash is slightly more important than profit from a dividend perspective, but given Sociedad Química y Minera de Chile's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Sociedad Química y Minera de Chile earnings per share are up 3.3% per annum over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sociedad Química y Minera de Chile has seen its dividend decline 1.6% per annum on average over the past ten years, which is not great to see.
To Sum It Up
Has Sociedad Química y Minera de Chile got what it takes to maintain its dividend payments? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Sociedad Química y Minera de Chile and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 3 warning signs for Sociedad Química y Minera de Chile you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 editorial-team@simplywallst.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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