Dividend Investors: Don't Be Too Quick To Buy Sedlmayr Grund und Immobilien AG (FRA:SPB) For Its Upcoming Dividend

Sedlmayr Grund und Immobilien AG (FRA:SPB) stock is about to trade ex-dividend in 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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 Sedlmayr Grund und Immobilien's shares on or after the 29th of April, you won't be eligible to receive the dividend, when it is paid on the 2nd of May.

The company's next dividend payment will be €29.00 per share. Last year, in total, the company distributed €29.00 to shareholders. Based on the last year's worth of payments, Sedlmayr Grund und Immobilien stock has a trailing yield of around 2.3% on the current share price of €1250.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sedlmayr Grund und Immobilien can afford its dividend, and if the dividend could grow.

See our latest analysis for Sedlmayr Grund und Immobilien

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. Sedlmayr Grund und Immobilien distributed an unsustainably high 167% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Sedlmayr Grund und Immobilien generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Sedlmayr Grund und Immobilien's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Sedlmayr Grund und Immobilien paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Sedlmayr Grund und Immobilien's earnings per share have fallen at approximately 18% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sedlmayr Grund und Immobilien's dividend payments per share have declined at 0.7% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Should investors buy Sedlmayr Grund und Immobilien for the upcoming dividend? It's not a great combination to see a company with earnings in decline and paying out 167% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Sedlmayr Grund und Immobilien's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Sedlmayr Grund und Immobilien has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Sedlmayr Grund und Immobilien as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 3 warning signs for Sedlmayr Grund und Immobilien (2 are a bit concerning!) that deserve your attention before investing in the shares.

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.