Interested In Afluente Transmissão de Energia Elétrica's (BVMF:AFLT3) Upcoming R$0.1252601 Dividend? You Have Four Days Left

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Afluente Transmissão de Energia Elétrica S.A. (BVMF:AFLT3) is about to trade ex-dividend in the next 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Afluente Transmissão de Energia Elétrica investors that purchase the stock on or after the 2nd of January will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be R$0.1252601 per share, and in the last 12 months, the company paid a total of R$0.21 per share. Calculating the last year's worth of payments shows that Afluente Transmissão de Energia Elétrica has a trailing yield of 2.8% on the current share price of R$7.60. 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. Afluente Transmissão de Energia Elétrica is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Afluente Transmissão de Energia Elétrica paid out more free cash flow than it generated - 158%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Afluente Transmissão de Energia Elétrica's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Afluente Transmissão de Energia Elétrica's ability to maintain its dividend.

See our latest analysis for Afluente Transmissão de Energia Elétrica

Click here to see how much of its profit Afluente Transmissão de Energia Elétrica paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Afluente Transmissão de Energia Elétrica, with earnings per share up 6.7% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Afluente Transmissão de Energia Elétrica has seen its dividend decline 0.5% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Is Afluente Transmissão de Energia Elétrica an attractive dividend stock, or better left on the shelf? Afluente Transmissão de Energia Elétrica delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 158% of its cash flow over the last year, which is a mediocre outcome. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that being said, if dividends aren't your biggest concern with Afluente Transmissão de Energia Elétrica, you should know about the other risks facing this business. For example, we've found 3 warning signs for Afluente Transmissão de Energia Elétrica (2 shouldn't be ignored!) that deserve your attention before investing in the shares.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.