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Don't Race Out To Buy PunaMusta Media Oyj (HEL:PUMU) Just Because It's Going Ex-Dividend

Simply Wall St

PunaMusta Media Oyj (HEL:PUMU) stock is about to trade ex-dividend in 2 days time. Investors can purchase shares before the 30th of March in order to be eligible for this dividend, which will be paid on the 7th of April.

PunaMusta Media Oyj's next dividend payment will be €0.25 per share, on the back of last year when the company paid a total of €0.25 to shareholders. Based on the last year's worth of payments, PunaMusta Media Oyj has a trailing yield of 4.2% on the current stock price of €5.9. 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.

Check out our latest analysis for PunaMusta Media Oyj

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PunaMusta Media Oyj distributed an unsustainably high 136% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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 PunaMusta Media 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.

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

HLSE:PUMU Historical Dividend Yield March 27th 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by PunaMusta Media Oyj's 7.0% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. PunaMusta Media Oyj's dividend payments per share have declined at 1.8% per year on average over the past ten years, which is uninspiring.

Final Takeaway

Is PunaMusta Media Oyj worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 136% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Bottom line: PunaMusta Media Oyj has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering PunaMusta Media Oyj as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 4 warning signs for PunaMusta Media Oyj you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.