It looks like Conzzeta AG (VTX:CON) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 1st of October will not receive the dividend, which will be paid on the 3rd of October.
The upcoming dividend for Conzzeta will put a total of CHF30.0 per share in shareholders' pockets, up from last year's total dividends of CHF18.0. If you buy this business for its dividend, you should have an idea of whether Conzzeta's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Conzzeta
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. Conzzeta paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Conzzeta generated enough free cash flow to afford its dividend. Over the past year it paid out 112% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Conzzeta does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Conzzeta'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. Cash is king, as they say, and were Conzzeta to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Conzzeta, with earnings per share up 5.0% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.