Dividend Investors: Don't Be Too Quick To Buy Burkhalter Holding AG (VTX:BRKN) For Its Upcoming Dividend

It looks like Burkhalter Holding AG (VTX:BRKN) is about to go ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Burkhalter Holding investors that purchase the stock on or after the 15th of May will not receive the dividend, which will be paid on the 19th of May.

The company's next dividend payment will be CHF04.85 per share, and in the last 12 months, the company paid a total of CHF4.85 per share. Looking at the last 12 months of distributions, Burkhalter Holding has a trailing yield of approximately 3.7% on its current stock price of CHF0129.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 1 warning sign about Burkhalter Holding. View them for free.

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. Burkhalter Holding paid out 90% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Burkhalter Holding'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.

View our latest analysis for Burkhalter Holding

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

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, we're encouraged by the steady growth at Burkhalter Holding, with earnings per share up 7.7% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Burkhalter Holding dividends are largely the same as they were 10 years ago.

The Bottom Line

From a dividend perspective, should investors buy or avoid Burkhalter Holding? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Burkhalter Holding. To help with this, we've discovered 1 warning sign for Burkhalter Holding that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.