Here's Why We're Wary Of Buying Alm. Brand's (CPH:ALMB) 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 Alm. Brand A/S (CPH:ALMB) is about to go ex-dividend in just four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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, Alm. Brand investors that purchase the stock on or after the 11th of April will not receive the dividend, which will be paid on the 15th of April.

The company's next dividend payment will be kr.0.60 per share, on the back of last year when the company paid a total of kr.0.60 to shareholders. Last year's total dividend payments show that Alm. Brand has a trailing yield of 4.1% on the current share price of kr.14.67. 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list 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. Alm. Brand distributed an unsustainably high 119% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

View our latest analysis for Alm. Brand

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Alm. Brand's earnings per share have dropped 30% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Alm. Brand has delivered 1.8% dividend growth per year on average over the past 10 years.

Final Takeaway

Is Alm. Brand worth buying for its dividend? Earnings per share are in decline and Alm. Brand is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. Alm. Brand doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Alm. Brand don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 2 warning signs for Alm. Brand (1 can't be ignored) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.