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 Ahlstrom-Munksjö Oyj (HEL:AM1) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 26th of March will not receive the dividend, which will be paid on the 3rd of April.
Ahlstrom-Munksjö Oyj's next dividend payment will be €0.13 per share, and in the last 12 months, the company paid a total of €0.52 per share. Based on the last year's worth of payments, Ahlstrom-Munksjö Oyj has a trailing yield of 6.0% on the current stock price of €8.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. Ahlstrom-Munksjö Oyj paid out 190% 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 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Ahlstrom-Munksjö Oyj'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Ahlstrom-Munksjö Oyj's earnings per share have been growing at 15% a year for the past five years.
We'd also point out that Ahlstrom-Munksjö Oyj issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past five years, Ahlstrom-Munksjö Oyj has increased its dividend at approximately 16% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Ahlstrom-Munksjö Oyj worth buying for its dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Ahlstrom-Munksjö Oyj is paying out so much of its profit. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 5 warning signs for Ahlstrom-Munksjö Oyj (of which 1 can't be ignored!) you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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