Don’t buy Patrizia AG (ETR: PAT) for its next dividend without doing these checks

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Patrizia AG The stock (ETR: PAT) is about to trade ex-dividend in 3 days. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. In other words, investors can buy Patrizia shares before October 15 in order to be eligible for the dividend, which will be paid on October 19.

The future dividend of the company is € 0.30 per share, following the last 12 months, when the company has distributed a total of € 0.30 per share to shareholders. Based on the value of last year’s payouts, Patrizia has a rolling 1.3% return on the current share price of € 22.7. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! It is therefore necessary to check whether dividend payments are covered and whether profits are growing.

See our latest review for Patrizia

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Its dividend payout rate is 86% of profits, which means the company pays out the majority of its profits. The relatively limited reinvestment of earnings could slow the rate of future earnings growth. This could become a concern if profits start to decline. Still, cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. Dividends consumed 55% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.

It is positive to see that Patrizia’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of profitability. security before the dividend is cut.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

XTRA: PAT Historical Dividend October 11, 2021

Have profits and dividends increased?

When profits fall, dividend companies become much more difficult to analyze and safely own. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. Readers will then understand why we are concerned that Patrizia’s earnings per share have fallen 22% per year over the past five years. Ultimately, when earnings per share declines, the size of the pie from which dividends can be paid declines.

Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began four years ago, Patrizia has increased its dividend by around 4.7% per year on average. It’s intriguing, but the combination of growing dividends despite falling profits can usually only be achieved by paying a higher percentage of the profits. Patrizia is already paying a high percentage of its income, so without profit growth, we doubt this dividend will increase much in the future.

The bottom line

From a dividend perspective, should investors buy or avoid Patrizia? As earnings per share decline, it’s encouraging to see that at least Patrizia’s dividend looks sustainable, with earnings and cash payout ratios that are within reason. It’s not the most attractive proposition from a dividend standpoint, and we would probably drop this one for now.

So, if you are still interested in Patrizia despite its low dividend qualities, you should be well informed about some of the risks that this security faces. In terms of investment risks, we have identified 1 warning sign with Patrizia and understanding them should be part of your investment process.

A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

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