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Should You Buy Electra Consumer Products (1970) Ltd (TLV:ECP) For Its Upcoming Dividend?


Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Electra Consumer Products (1970) Ltd (TLV:ECP) is about to trade ex-dividend in the next three 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. In other words, investors can purchase Electra Consumer Products (1970)’s shares before the 19th of September in order to be eligible for the dividend, which will be paid on the 2nd of October.

The company’s next dividend payment will be ₪1.38 per share, and in the last 12 months, the company paid a total of ₪2.75 per share. Based on the last year’s worth of payments, Electra Consumer Products (1970) has a trailing yield of 1.9% on the current stock price of ₪146.4. 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 investigate whether Electra Consumer Products (1970) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Electra Consumer Products (1970)

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. Electra Consumer Products (1970) paid out a comfortable 44% of its profit last year. 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. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.

It’s positive to see that Electra Consumer Products (1970)’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.

Click here to see how much of its profit Electra Consumer Products (1970) paid out over the last 12 months.

TASE:ECP Historic Dividend September 15th 2022

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. With that in mind, we’re encouraged by the steady growth at Electra Consumer Products (1970), with earnings per share up 9.3% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Electra Consumer Products (1970)’s dividend payments per share have declined at 2.7% per year on average over the past six years, which is uninspiring. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Has Electra Consumer Products (1970) got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Electra Consumer Products (1970) is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Electra Consumer Products (1970) is halfway there. There’s a lot to like about Electra Consumer Products (1970), and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we’ve discovered 2 warning signs for Electra Consumer Products (1970) that you should be aware of before investing in their 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.

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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