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

Nyfosa AB (publ) (STO:NYF) stock is about to trade ex-dividend in 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Nyfosa investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 5th of January.

The company's next dividend payment will be kr00.70 per share, on the back of last year when the company paid a total of kr2.80 to shareholders. Calculating the last year's worth of payments shows that Nyfosa has a trailing yield of 3.9% on the current share price of kr072.65. 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.

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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, Nyfosa paid out 103% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its 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. Luckily it paid out just 16% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Nyfosa fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Check out our latest analysis for Nyfosa

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Nyfosa's earnings per share have fallen at approximately 20% a year over the previous 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. Nyfosa has seen its dividend decline 1.4% per annum on average over the past five years, which is not great to see.

Final Takeaway

Is Nyfosa worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 103% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Nyfosa's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not that we think Nyfosa is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Nyfosa and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Nyfosa is showing 3 warning signs in our investment analysis, and 1 of those is concerning...

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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.