Do These 3 Checks Before Buying Aquaticus Real Estate AB (publ) (NGM:AQUAT) For Its Upcoming Dividend

It looks like Aquaticus Real Estate AB (publ) (NGM:AQUAT) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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 Aquaticus Real Estate's shares on or after the 29th of December will not receive the dividend, which will be paid on the 7th of January.

The company's next dividend payment will be kr01.00 per share, and in the last 12 months, the company paid a total of kr4.00 per share. Looking at the last 12 months of distributions, Aquaticus Real Estate has a trailing yield of approximately 6.8% on its current stock price of kr058.50. 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 check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Aquaticus Real Estate paid out 72% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Aquaticus Real Estate generated enough free cash flow to afford its dividend. Over the past year it paid out 124% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Aquaticus Real Estate paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Aquaticus Real Estate to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Aquaticus Real Estate

Click here to see how much of its profit Aquaticus Real Estate paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Aquaticus Real Estate's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 42% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Aquaticus Real Estate's dividend payments per share have declined at 14% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Is Aquaticus Real Estate an attractive dividend stock, or better left on the shelf? Aquaticus Real Estate had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Bottom line: Aquaticus Real Estate has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Aquaticus Real Estate despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Aquaticus Real Estate is showing 5 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

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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.