Don't Race Out To Buy STS Group AG (ETR:SF3) 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 STS Group AG (ETR:SF3) is about to go ex-dividend in just four days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, STS Group investors that purchase the stock on or after the 29th of August will not receive the dividend, which will be paid on the 2nd of September.

The company's next dividend payment will be €0.05 per share. Last year, in total, the company distributed €0.05 to shareholders. Based on the last year's worth of payments, STS Group has a trailing yield of 1.2% on the current stock price of €4.16. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. STS Group reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If STS Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term.

Check out our latest analysis for STS Group

Click here to see how much of its profit STS Group 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. STS Group was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, three years ago, STS Group has lifted its dividend by approximately 7.7% a year on average.

We update our analysis on STS Group every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid STS Group? It's hard to get used to STS Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: STS Group has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of STS Group don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 1 warning sign for STS Group that we recommend you consider before investing in the business.

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.