Dividend Investors: Don’t Be Too Quick To Buy Fundamenta Real Estate AG (VTX:FREN) For Its
Fundamenta Real Estate AG (VTX:FREN) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn’t show on the record date. In other words, investors can purchase Fundamenta Real Estate’s shares before the 11th of April in order to be eligible for the dividend, which will be paid on the 13th of April.
The company’s upcoming dividend is CHF0.55 a share, following on from the last 12 months, when the company distributed a total of CHF0.55 per share to shareholders. Looking at the last 12 months of distributions, Fundamenta Real Estate has a trailing yield of approximately 3.3% on its current stock price of CHF16.6. 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! As a result, readers should always check whether Fundamenta Real Estate has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Fundamenta Real Estate is paying out an acceptable 74% of its profit, a common payout level among most companies. 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. Dividends consumed 74% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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. So we’re not too excited that Fundamenta Real Estate’s earnings are down 2.9% a year over the past five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Fundamenta Real Estate has delivered an average of 3.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. That’s interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company’s profits. This can be valuable for shareholders, but it can’t go on forever.
Is Fundamenta Real Estate worth buying for its dividend? It’s never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We’re aware though that if earnings continue to decline, the dividend could be at risk. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
So if you’re still interested in Fundamenta Real Estate despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we’ve identified 2 warning signs for Fundamenta Real Estate (1 makes us a bit uncomfortable) you should be aware of.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.
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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 position in any stocks mentioned.
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