Do These 3 Checks Before Buying Public Joint-Stock Company PhosAgro (MCX:PHOR) For Its Upcoming Dividend

Public Joint-Stock Company PhosAgro (MCX:PHOR) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 1st of June, you won't be eligible to receive this dividend, when it is paid on the 3rd of June.

PhosAgro's upcoming dividend is ₽18.00 a share, following on from the last 12 months, when the company distributed a total of ₽192 per share to shareholders. Last year's total dividend payments show that PhosAgro has a trailing yield of 6.9% on the current share price of RUB2800. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for PhosAgro

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PhosAgro paid out a disturbingly high 203% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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. The company paid out 103% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

As PhosAgro's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see PhosAgro earnings per share are up 6.3% per annum over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we're comfortable with over the long term.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, PhosAgro has increased its dividend at approximately 10% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy PhosAgro for the upcoming dividend? PhosAgro is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in PhosAgro despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 4 warning signs for PhosAgro that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.

This article by Simply Wall St is general in nature. 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. Thank you for reading.