Don't Buy Eniro Group AB (publ) (STO:ENRO) For Its Next Dividend Without Doing These Checks
Eniro Group AB (publ) (STO:ENRO) is about to trade ex-dividend in the next two 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 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. Thus, you can purchase Eniro Group's shares before the 5th of November in order to receive the dividend, which the company will pay on the 11th of November.
The company's next dividend payment will be kr02.50 per share, and in the last 12 months, the company paid a total of kr2.50 per share. Based on the last year's worth of payments, Eniro Group has a trailing yield of 6.5% on the current stock price of kr038.28. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Eniro Group has been able to grow its dividends, or if the dividend might be cut.
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. Eniro Group distributed an unsustainably high 127% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Eniro Group 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.
View our latest analysis for Eniro Group
Click here to see how much of its profit Eniro Group paid out over the last 12 months.
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. Eniro Group's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 84% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Eniro Group has delivered 5.7% dividend growth per year on average over the past four years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Eniro Group is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Is Eniro Group an attractive dividend stock, or better left on the shelf? Earnings per share have been shrinking in recent times. Additionally, Eniro Group is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not that we think Eniro Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Eniro Group as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 3 warning signs for Eniro Group 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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