We Wouldn't Be Too Quick To Buy Sanoma Oyj (HEL:SANOMA) Before It Goes Ex-Dividend
Sanoma Oyj (HEL:SANOMA) is about to trade ex-dividend in the next 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Sanoma Oyj investors that purchase the stock on or after the 14th of September will not receive the dividend, which will be paid on the 22nd of September.
The company's upcoming dividend is €0.14 a share, following on from the last 12 months, when the company distributed a total of €0.42 per share to shareholders. Based on the last year's worth of payments, Sanoma Oyj stock has a trailing yield of around 4.4% on the current share price of €9.63. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Last year, Sanoma Oyj paid out 397% 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. 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. Dividends consumed 51% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's good to see that while Sanoma Oyj's dividends were not covered by profits, at least they are affordable from a cash perspective. 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.
Check out our latest analysis for Sanoma 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Sanoma Oyj's earnings per share have plummeted approximately 41% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sanoma Oyj has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Sanoma Oyj is already paying out 397% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Sanoma Oyj an attractive dividend stock, or better left on the shelf? Earnings per share have been in decline, which is not encouraging. Worse, Sanoma Oyj'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 Sanoma Oyj is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
So if you're still interested in Sanoma Oyj despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Sanoma Oyj has 4 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.