Bezeq The Israel Telecommunication Corp. Ltd (TLV:BEZQ) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Bezeq The Israel Telecommunication Corp. Ltd (TLV:BEZQ) is about to go ex-dividend in just three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Bezeq The Israel Telecommunication's shares on or after the 15th of September will not receive the dividend, which will be paid on the 24th of September.
The company's next dividend payment will be ₪0.1508422 per share. Last year, in total, the company distributed ₪0.41 to shareholders. Based on the last year's worth of payments, Bezeq The Israel Telecommunication has a trailing yield of 5.3% on the current stock price of ₪7.76. 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 Bezeq The Israel Telecommunication 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. Fortunately Bezeq The Israel Telecommunication's payout ratio is modest, at just 45% of profit. 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. Over the last year it paid out 67% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Bezeq The Israel Telecommunication'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 Bezeq The Israel Telecommunication
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Bezeq The Israel Telecommunication earnings per share are up 8.8% per annum over the last five years. Decent historical earnings per share growth suggests Bezeq The Israel Telecommunication has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bezeq The Israel Telecommunication has seen its dividend decline 4.1% per annum on average over the past 10 years, which is not great to see. Bezeq The Israel Telecommunication is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Bezeq The Israel Telecommunication worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Bezeq The Israel Telecommunication is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy Bezeq The Israel Telecommunication today.
On that note, you'll want to research what risks Bezeq The Israel Telecommunication is facing. For example - Bezeq The Israel Telecommunication has 2 warning signs we think 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.
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.