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

Mobimo Holding AG (VTX:MOBN) stock is about to trade ex-dividend in 3 days. 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 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 Mobimo Holding's shares before the 28th of March to receive the dividend, which will be paid on the 3rd of April.

The company's upcoming dividend is CHF010.00 a share, following on from the last 12 months, when the company distributed a total of CHF10.00 per share to shareholders. Based on the last year's worth of payments, Mobimo Holding has a trailing yield of 3.7% on the current stock price of CHF0269.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Mobimo Holding can afford its dividend, and if the dividend could grow.

See our latest analysis for Mobimo 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. Mobimo Holding distributed an unsustainably high 156% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Mobimo Holding's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Mobimo Holding's earnings per share have fallen at approximately 15% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mobimo Holding has delivered 1.1% dividend growth per year on average over the past 10 years.

Final Takeaway

Has Mobimo Holding got what it takes to maintain its dividend payments? It's never great to see earnings per share declining, especially when a company is paying out 156% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Mobimo Holding's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not that we think Mobimo Holding is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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 Mobimo Holding. To that end, you should learn about the 4 warning signs we've spotted with Mobimo Holding (including 1 which doesn't sit too well with us).

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.