We Wouldn't Be Too Quick To Buy Elekta AB (publ) (STO:EKTA B) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Elekta AB (publ) (STO:EKTA B) is about to go ex-dividend in just 2 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Elekta's shares before the 4th of September in order to receive the dividend, which the company will pay on the 10th of September.

The company's next dividend payment will be kr01.20 per share, and in the last 12 months, the company paid a total of kr2.40 per share. Last year's total dividend payments show that Elekta has a trailing yield of 4.4% on the current share price of kr054.30. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's 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. Elekta reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.

See our latest analysis for Elekta

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Elekta was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Elekta has delivered 17% dividend growth per year on average over the past 10 years.

Get our latest analysis on Elekta's balance sheet health here.

To Sum It Up

Is Elekta an attractive dividend stock, or better left on the shelf? It's hard to get used to Elekta paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Elekta has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Elekta and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 2 warning signs for Elekta and you should be aware of them before buying any shares.

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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.