Dividend Investors: Don't Be Too Quick To Buy medmix AG (VTX:MEDX) For Its Upcoming Dividend

Readers hoping to buy medmix AG (VTX:MEDX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Meaning, you will need to purchase medmix's shares before the 3rd of May to receive the dividend, which will be paid on the 5th of May.

The company's next dividend payment will be CHF0.50 per share. Last year, in total, the company distributed CHF0.50 to shareholders. Calculating the last year's worth of payments shows that medmix has a trailing yield of 2.3% on the current share price of CHF21.6. If you buy this business for its dividend, you should have an idea of whether medmix's dividend is reliable and sustainable. As a result, readers should always check whether medmix has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for medmix

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. medmix distributed an unsustainably high 177% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether medmix generated enough free cash flow to afford its dividend. medmix paid out more free cash flow than it generated - 167%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

As medmix's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. From this perspective, we're disturbed to see earnings per share plunged 74% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.

Unfortunately medmix has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Should investors buy medmix for the upcoming dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (177%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering medmix as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 3 warning signs with medmix (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.