Here's What We Like About Pirelli & C's (BIT:PIRC) Upcoming Dividend
Readers hoping to buy Pirelli & C. S.p.A. (BIT:PIRC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Pirelli & C investors that purchase the stock on or after the 20th of July will not receive the dividend, which will be paid on the 22nd of July.
The company's upcoming dividend is €0.34 a share, following on from the last 12 months, when the company distributed a total of €0.24 per share to shareholders. Based on the last year's worth of payments, Pirelli & C has a trailing yield of 3.5% on the current stock price of €6.83. If you buy this business for its dividend, you should have an idea of whether Pirelli & C's dividend is reliable and sustainable. As a result, readers should always check whether Pirelli & C has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Pirelli & C paid out a comfortable 47% of its profit last year. A useful secondary check can be to evaluate whether Pirelli & C generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Pirelli & C's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
View our latest analysis for Pirelli & C
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Pirelli & C has grown its earnings rapidly, up 74% a year for the past five years. Pirelli & C is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, Pirelli & C has lifted its dividend by approximately 4.4% a year on average. 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
Should investors buy Pirelli & C for the upcoming dividend? Pirelli & C has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past seven years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Pirelli & C, and we would prioritise taking a closer look at it.
While it's tempting to invest in Pirelli & C for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Pirelli & C and understanding them should be part of your investment process.
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 position in any stocks mentioned.