Don't Buy Bilia AB (publ) (STO:BILI A) For Its Next Dividend Without Doing These Checks
Bilia AB (publ) (STO:BILI A) is about to trade ex-dividend in the next 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. 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. In other words, investors can purchase Bilia's shares before the 5th of October in order to be eligible for the dividend, which will be paid on the 9th of October.
The company's next dividend payment will be kr01.50 per share, and in the last 12 months, the company paid a total of kr6.00 per share. Based on the last year's worth of payments, Bilia has a trailing yield of 4.2% on the current stock price of kr0144.30. 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 investigate whether Bilia can afford its dividend, and if the dividend could grow.
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. Bilia paid out 66% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The company paid out 91% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Bilia paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Bilia's ability to maintain its dividend.
See our latest analysis for Bilia
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Bilia's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
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, Bilia has lifted its dividend by approximately 4.8% a year on average.
The Bottom Line
Has Bilia got what it takes to maintain its dividend payments? It's not great to see earnings per share have been flat and that the company paid out an uncomfortably high percentage of its cash flow over the past year. Cash flows are typically more volatile than earnings, but this is still not what we like to see. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
So if you're still interested in Bilia despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 2 warning signs for Bilia 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.