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Is It Smart To Buy Asaleo Care Limited (ASX:AHY) Before It Goes Ex-Dividend?

Simply Wall St

Asaleo Care Limited (ASX:AHY) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 5th of March will not receive this dividend, which will be paid on the 3rd of April.

Asaleo Care's next dividend payment will be AU$0.02 per share, and in the last 12 months, the company paid a total of AU$0.02 per share. Looking at the last 12 months of distributions, Asaleo Care has a trailing yield of approximately 1.9% on its current stock price of A$1.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Asaleo Care can afford its dividend, and if the dividend could grow.

See our latest analysis for Asaleo Care

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. Asaleo Care paid out a comfortable 38% of its profit last year. Asaleo Care paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

ASX:AHY Historical Dividend Yield, February 29th 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Asaleo Care's earnings have been skyrocketing, up 54% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Asaleo Care's dividend payments per share have declined at 18% per year on average over the past five years, which is uninspiring. Asaleo Care is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Is Asaleo Care worth buying for its dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Asaleo Care ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

Ever wonder what the future holds for Asaleo Care? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.