Naturgy Chile Gas Natural S.A. (SNSE:NTGCLGAS) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Accordingly, Naturgy Chile Gas Natural investors that purchase the stock on or after the 23rd of November will not receive the dividend, which will be paid on the 28th of November.
The company’s next dividend payment will be CL$29.00 per share, which looks like a nice increase on last year, when the company distributed a total of CL$23.00 to shareholders. 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.
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. Naturgy Chile Gas Natural reported a loss last year, so it’s not great to see that it has continued paying a dividend. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Naturgy Chile Gas Natural’s earnings per share have risen 19% per annum over the last five years. Naturgy Chile Gas Natural is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Naturgy Chile Gas Natural has delivered 2.0% dividend growth per year on average over the past seven years. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
From a dividend perspective, should investors buy or avoid Naturgy Chile Gas Natural? It’s good to see earnings per share growing and low cashflow payout ratio, although we’re uncomfortable with Naturgy Chile Gas Natural’s paying out such a high percentage of its profit. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that Naturgy Chile Gas Natural is showing 3 warning signs in our investment analysis, and 2 of those are potentially serious…
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…