It Might Not Be A Great Idea To Buy Link Prop Investment AB (publ) (NGM:LINKAB) For Its Next Dividend
Link Prop Investment AB (publ) (NGM:LINKAB) is about to trade ex-dividend in the next 4 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Link Prop Investment's shares before the 2nd of October in order to receive the dividend, which the company will pay on the 8th of October.
The company's next dividend payment will be kr02.00 per share. Last year, in total, the company distributed kr8.00 to shareholders. Last year's total dividend payments show that Link Prop Investment has a trailing yield of 6.1% on the current share price of kr0132.00. If you buy this business for its dividend, you should have an idea of whether Link Prop Investment's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Link Prop Investment distributed an unsustainably high 126% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Link Prop Investment generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (89%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's good to see that while Link Prop Investment's dividends were not covered by profits, at least they are affordable from a cash perspective. 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 Link Prop Investment
Click here to see how much of its profit Link Prop Investment paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Link Prop Investment's earnings per share have been shrinking at 2.4% 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. Link Prop Investment's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
The Bottom Line
Should investors buy Link Prop Investment for the upcoming dividend? It's never fun to see a company's earnings per share in retreat. Worse, Link Prop Investment'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. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Link Prop Investment.
Although, if you're still interested in Link Prop Investment and want to know more, you'll find it very useful to know what risks this stock faces. For example, Link Prop Investment has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about.
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.