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Is It Smart To Buy Per Aarsleff Holding A/S (CPH:PAAL B) Before It Goes Ex-Dividend?

Simply Wall St

It looks like Per Aarsleff Holding A/S (CPH:PAAL B) is about to go ex-dividend in the next 3 days. You will need to purchase shares before the 31st of January to receive the dividend, which will be paid on the 4th of February.

Per Aarsleff Holding's next dividend payment will be ø5.50 per share, on the back of last year when the company paid a total of ø5.50 to shareholders. Last year's total dividend payments show that Per Aarsleff Holding has a trailing yield of 2.5% on the current share price of DKK216.5. If you buy this business for its dividend, you should have an idea of whether Per Aarsleff Holding's dividend is reliable and sustainable. So we need to investigate whether Per Aarsleff Holding can afford its dividend, and if the dividend could grow.

View our latest analysis for Per Aarsleff Holding

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Per Aarsleff Holding paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Per Aarsleff Holding generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

CPSE:PAAL B Historical Dividend Yield, January 27th 2020

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. 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, we're encouraged by the steady growth at Per Aarsleff Holding, with earnings per share up 7.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, Per Aarsleff Holding has lifted its dividend by approximately 28% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Per Aarsleff Holding? Earnings per share growth has been growing somewhat, and Per Aarsleff Holding is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Per Aarsleff Holding is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Curious what other investors think of Per Aarsleff Holding? See what analysts 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.