Avolta AG (VTX:AVOL) Stock Goes Ex-Dividend In Just Four Days

Readers hoping to buy Avolta AG (VTX:AVOL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Avolta's shares before the 16th of May to receive the dividend, which will be paid on the 20th of May.

The company's next dividend payment will be CHF01.00 per share. Last year, in total, the company distributed CHF1.00 to shareholders. Looking at the last 12 months of distributions, Avolta has a trailing yield of approximately 2.3% on its current stock price of CHF042.86. If you buy this business for its dividend, you should have an idea of whether Avolta's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Our free stock report includes 2 warning signs investors should be aware of before investing in Avolta. Read for free now.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Avolta paid out 143% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Luckily it paid out just 4.9% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Avolta fortunately did generate enough cash to fund its dividend. 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.

Check out our latest analysis for Avolta

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

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Avolta has grown its earnings rapidly, up 61% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Avolta has seen its dividend decline 17% per annum on average over the past seven years, which is not great to see. Avolta is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

From a dividend perspective, should investors buy or avoid Avolta? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Avolta's paying out such a high percentage of its profit. Overall, it's hard to get excited about Avolta from a dividend perspective.

In light of that, while Avolta has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Avolta (1 is potentially serious!) that deserve your attention before investing in the shares.

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.