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Dividend Investors: Don't Be Too Quick To Buy Aspo Oyj (HEL:ASPO) For Its Upcoming Dividend

Simply Wall St

Aspo Oyj (HEL:ASPO) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 5th of May, you won't be eligible to receive this dividend, when it is paid on the 13th of May.

Aspo Oyj's next dividend payment will be €0.11 per share. Last year, in total, the company distributed €0.45 to shareholders. Based on the last year's worth of payments, Aspo Oyj stock has a trailing yield of around 7.0% on the current share price of €6.44. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Aspo Oyj has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Aspo Oyj

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Aspo Oyj paid out 95% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Aspo Oyj generated enough free cash flow to afford its dividend. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Aspo Oyj's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

HLSE:ASPO Historical Dividend Yield May 2nd 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Aspo Oyj's earnings per share have been shrinking at 3.5% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Aspo Oyj has lifted its dividend by approximately 0.7% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Aspo Oyj? It's never great to see earnings per share declining, especially when a company is paying out 95% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Aspo Oyj's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Aspo Oyj.

So if you're still interested in Aspo Oyj despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 3 warning signs for Aspo Oyj you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 editorial-team@simplywallst.com. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.