We Wouldn't Be Too Quick To Buy K+S Aktiengesellschaft (ETR:SDF) Before It Goes Ex-Dividend

K+S Aktiengesellschaft (ETR:SDF) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase K+S' shares before the 15th of May to receive the dividend, which will be paid on the 19th of May.

The company's next dividend payment will be €0.15 per share, on the back of last year when the company paid a total of €0.15 to shareholders. Based on the last year's worth of payments, K+S has a trailing yield of 1.0% on the current stock price of €15.61. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We check all companies for important risks. See what we found for K+S in our free report.

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. K+S 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 K+S 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. K+S paid out more free cash flow than it generated - 184%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

View our latest analysis for K+S

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. K+S reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. K+S has seen its dividend decline 16% per annum on average over the past 10 years, which is not great to see.

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

Final Takeaway

Should investors buy K+S for the upcoming dividend? It's hard to get used to K+S paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not that we think K+S is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Ever wonder what the future holds for K+S? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.