Don't Race Out To Buy HOCHTIEF Aktiengesellschaft (ETR:HOT) Just Because It's Going Ex-Dividend

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 HOCHTIEF Aktiengesellschaft (ETR:HOT) is about to go ex-dividend in just 3 days. The ex-dividend date is one business day before a company's record date, 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. Therefore, if you purchase HOCHTIEF's shares on or after the 28th of April, you won't be eligible to receive the dividend, when it is paid on the 7th of July.

The company's upcoming dividend is €1.91 a share, following on from the last 12 months, when the company distributed a total of €1.91 per share to shareholders. Based on the last year's worth of payments, HOCHTIEF has a trailing yield of 3.2% on the current stock price of €60.56. 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 investigate whether HOCHTIEF can afford its dividend, and if the dividend could grow.

View our latest analysis for HOCHTIEF

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. HOCHTIEF is paying out an acceptable 61% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that HOCHTIEF's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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 fall far enough, the company could be forced to cut its dividend. HOCHTIEF's earnings per share have fallen at approximately 9.0% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, HOCHTIEF has increased its dividend at approximately 7.5% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is HOCHTIEF an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least HOCHTIEF's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think HOCHTIEF is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in HOCHTIEF despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 2 warning signs for HOCHTIEF and you should be aware of them before buying any 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.