Don't Buy EPIC Suisse AG (VTX:EPIC) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that EPIC Suisse AG (VTX:EPIC) is about to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase EPIC Suisse's shares before the 6th of May to receive the dividend, which will be paid on the 8th of May.

The company's next dividend payment will be CHF03.10 per share, and in the last 12 months, the company paid a total of CHF3.10 per share. Looking at the last 12 months of distributions, EPIC Suisse has a trailing yield of approximately 4.2% on its current stock price of CHF073.80. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for EPIC Suisse

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. EPIC Suisse distributed an unsustainably high 182% 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 EPIC Suisse generated enough free cash flow to afford its dividend. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and EPIC Suisse fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit EPIC Suisse paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see EPIC Suisse's earnings per share have dropped 28% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Given that EPIC Suisse has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Should investors buy EPIC Suisse for the upcoming dividend? Earnings per share have been shrinking in recent times. Additionally, EPIC Suisse is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Bottom line: EPIC Suisse 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 EPIC Suisse as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 5 warning signs for EPIC Suisse (of which 2 are concerning!) you should know about.

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.