Is It Smart To Buy Alexanderwerk Aktiengesellschaft (FRA:ALXA) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Alexanderwerk Aktiengesellschaft (FRA:ALXA) is about to trade ex-dividend in the next four 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. 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. In other words, investors can purchase Alexanderwerk's shares before the 9th of September in order to be eligible for the dividend, which will be paid on the 11th of September.

The company's next dividend payment will be €1.00 per share. Last year, in total, the company distributed €1.00 to shareholders. Looking at the last 12 months of distributions, Alexanderwerk has a trailing yield of approximately 6.0% on its current stock price of €16.80. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Alexanderwerk

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. Fortunately Alexanderwerk's payout ratio is modest, at just 45% of profit. A useful secondary check can be to evaluate whether Alexanderwerk generated enough free cash flow to afford its dividend. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Alexanderwerk'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 how much of its profit Alexanderwerk paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Alexanderwerk's earnings per share have been growing at 14% a year for the past five years. Alexanderwerk is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Alexanderwerk has increased its dividend at approximately 19% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid Alexanderwerk? Earnings per share have grown at a nice rate in recent times and over the last year, Alexanderwerk paid out less than half its earnings and a bit over half its free cash flow. Alexanderwerk looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Alexanderwerk is facing. For example, we've found 2 warning signs for Alexanderwerk that we recommend you consider before investing in the business.

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.