Readers hoping to buy Repsol, S.A. (BME:REP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 17th of December to receive the dividend, which will be paid on the 31st of December.
Repsol's upcoming dividend is €0.33 a share, following on from the last 12 months, when the company distributed a total of €0.94 per share to shareholders. Looking at the last 12 months of distributions, Repsol has a trailing yield of approximately 6.5% on its current stock price of €14.375. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Repsol can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Repsol paid out 97% 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. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.
It's good to see that while Repsol's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Repsol's earnings per share have risen 11% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Repsol's dividend payments per share have declined at 1.1% per year on average over the past ten years, which is uninspiring.
Is Repsol worth buying for its dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Repsol is paying out so much of its profit. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for Repsol? See what the 21 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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