Don't Race Out To Buy Fiskars Oyj Abp (HEL:FSKRS) Just Because It's Going Ex-Dividend

Fiskars Oyj Abp (HEL:FSKRS) stock is about to trade ex-dividend in 3 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Fiskars Oyj Abp's shares before the 10th of September to receive the dividend, which will be paid on the 18th of September.

The company's upcoming dividend is €0.21 a share, following on from the last 12 months, when the company distributed a total of €0.84 per share to shareholders. Based on the last year's worth of payments, Fiskars Oyj Abp has a trailing yield of 6.0% on the current stock price of €14.00. If you buy this business for its dividend, you should have an idea of whether Fiskars Oyj Abp's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Fiskars Oyj Abp paid out 233% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. A useful secondary check can be to evaluate whether Fiskars Oyj Abp generated enough free cash flow to afford its dividend. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Fiskars Oyj Abp fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

View our latest analysis for Fiskars Oyj Abp

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. Readers will understand then, why we're concerned to see Fiskars Oyj Abp's earnings per share have dropped 18% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fiskars Oyj Abp has delivered an average of 1.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Has Fiskars Oyj Abp got what it takes to maintain its dividend payments? Earnings per share have been in decline, which is not encouraging. Worse, Fiskars Oyj Abp's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. It's not that we think Fiskars Oyj Abp is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Fiskars Oyj Abp and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 2 warning signs for Fiskars Oyj Abp (1 shouldn't be ignored) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.