Why It Might Not Make Sense To Buy Posti Group Oyj (HEL:POSTI) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Posti Group Oyj (HEL:POSTI) is about to go ex-dividend in just four 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Posti Group Oyj's shares before the 16th of October in order to receive the dividend, which the company will pay on the 26th of October.
The company's next dividend payment will be €0.42 per share, and in the last 12 months, the company paid a total of €0.84 per share. Looking at the last 12 months of distributions, Posti Group Oyj has a trailing yield of approximately 6.2% on its current stock price of €13.62. 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 typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Posti Group Oyj paid out 119% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Posti Group 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. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
See our latest analysis for Posti Group Oyj
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Posti Group Oyj's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Given that Posti Group Oyj has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
From a dividend perspective, should investors buy or avoid Posti Group Oyj? Posti Group Oyj's earnings per share are effectively flat, and it is paying out just 34% of its cash flow but 119% of its income. To summarise, Posti Group Oyj looks okay on this analysis, although it doesn't appear a stand-out opportunity.
With that being said, if dividends aren't your biggest concern with Posti Group Oyj, you should know about the other risks facing this business. Our analysis shows 2 warning signs for Posti Group Oyj and you should be aware of these before buying any shares.
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.