Dividend Investors: Don't Be Too Quick To Buy Amadeus FiRe AG (ETR:AAD) For Its Upcoming 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 Amadeus FiRe AG (ETR:AAD) is about to go ex-dividend in just four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Amadeus FiRe investors that purchase the stock on or after the 23rd of May will not receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be €4.03 per share. Last year, in total, the company distributed €4.03 to shareholders. Calculating the last year's worth of payments shows that Amadeus FiRe has a trailing yield of 5.0% on the current share price of €80.00. If you buy this business for its dividend, you should have an idea of whether Amadeus FiRe's dividend is reliable and sustainable. So we need to investigate whether Amadeus FiRe can afford its dividend, and if the dividend could grow.

We've discovered 2 warning signs about Amadeus FiRe. View them for free.

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. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Amadeus FiRe

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Amadeus FiRe's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Amadeus FiRe has lifted its dividend by approximately 1.8% a year on average.

Final Takeaway

Is Amadeus FiRe worth buying for its dividend? While earnings per share are flat, at least Amadeus FiRe has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Bottom line: Amadeus FiRe 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 Amadeus FiRe don't faze you, it's worth being mindful of the risks involved with this business. In terms of investment risks, we've identified 2 warning signs with Amadeus FiRe and understanding them should be part of your investment process.

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.