It Might Not Be A Great Idea To Buy NV Bekaert SA (EBR:BEKB) For Its Next Dividend

Readers hoping to buy NV Bekaert SA (EBR:BEKB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 14th of May will not receive the dividend, which will be paid on the 20th of November.

NV Bekaert's next dividend payment will be €0.24 per share, and in the last 12 months, the company paid a total of €0.70 per share. Based on the last year's worth of payments, NV Bekaert has a trailing yield of 3.4% on the current stock price of €20.38. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for NV Bekaert

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year NV Bekaert paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. The good news is it paid out just 9.3% of its free cash flow in the last year.

It's good to see that while NV Bekaert's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by NV Bekaert's 14% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. NV Bekaert's dividend payments per share have declined at 3.3% per year on average over the past ten years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

From a dividend perspective, should investors buy or avoid NV Bekaert? It's not a great combination to see a company with earnings in decline and paying out 96% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in NV Bekaert's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: NV Bekaert has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in NV Bekaert despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 4 warning signs with NV Bekaert and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top 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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