We Wouldn't Be Too Quick To Buy Outokumpu Oyj (HEL:OUT1V) Before It Goes Ex-Dividend

Outokumpu Oyj (HEL:OUT1V) stock is about to trade ex-dividend in 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 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 Outokumpu Oyj's shares before the 14th of October in order to receive the dividend, which the company will pay on the 22nd of October.

The company's next dividend payment will be €0.07 per share. Last year, in total, the company distributed €0.13 to shareholders. Calculating the last year's worth of payments shows that Outokumpu Oyj has a trailing yield of 2.5% on the current share price of €5.135. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are 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. Outokumpu Oyj reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its 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. Outokumpu Oyj paid out more free cash flow than it generated - 139%, to be precise - last year, which we think is concerningly 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.

Check out our latest analysis for Outokumpu Oyj

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Outokumpu Oyj reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Outokumpu Oyj has lifted its dividend by approximately 2.7% a year on average.

We update our analysis on Outokumpu Oyj every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Has Outokumpu Oyj got what it takes to maintain its dividend payments? It's hard to get used to Outokumpu Oyj paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Outokumpu Oyj and want to know more, you'll find it very useful to know what risks this stock faces. For example - Outokumpu Oyj has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.