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Don't Race Out To Buy Logistea AB (publ) (STO:LOG) Just Because It's Going Ex-Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Logistea AB (publ) (STO:LOG) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 14th of April, you won't be eligible to receive this dividend, when it is paid on the 20th of April.

Logistea's upcoming dividend is kr1.88 a share, following on from the last 12 months, when the company distributed a total of kr7.52 per share to shareholders. Based on the last year's worth of payments, Logistea has a trailing yield of 7.6% on the current stock price of SEK98.5. 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 Logistea has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Logistea

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. Logistea paid out a disturbingly high 345% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Logistea 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. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Logistea paid out over the last 12 months.

OM:LOG Historical Dividend Yield April 10th 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, it's good to see earnings have grown 11% on last year.

One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Logistea dividends are largely the same as they were two years ago.

Final Takeaway

Is Logistea worth buying for its dividend? Logistea has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, it's hard to get excited about Logistea from a dividend perspective.

However if you're still interested in Logistea as a potential investment, you should definitely consider some of the risks involved with Logistea. For instance, we've identified 5 warning signs for Logistea (1 shouldn't be ignored) you should be aware of.

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.