ChemoMetec A/S (CPH:CHEMM) Goes Ex-Dividend Soon

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 ChemoMetec A/S (CPH:CHEMM) is about to go ex-dividend in just 3 days. The ex-dividend date occurs one day 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 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 ChemoMetec's shares on or after the 11th of October, you won't be eligible to receive the dividend, when it is paid on the 15th of October.

The company's next dividend payment will be kr.4.00 per share, on the back of last year when the company paid a total of kr.4.00 to shareholders. Calculating the last year's worth of payments shows that ChemoMetec has a trailing yield of 1.0% on the current share price of kr.385.20. If you buy this business for its dividend, you should have an idea of whether ChemoMetec's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for ChemoMetec

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ChemoMetec paid out 51% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. ChemoMetec paid out more free cash flow than it generated - 122%, 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.

While ChemoMetec's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to ChemoMetec's ability to maintain its dividend.

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. That's why it's comforting to see ChemoMetec's earnings have been skyrocketing, up 24% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ChemoMetec has seen its dividend decline 12% per annum on average over the past five years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is ChemoMetec worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note ChemoMetec paid out a much higher percentage of its free cash flow, which makes us uncomfortable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of ChemoMetec's dividend merits.

With that being said, if dividends aren't your biggest concern with ChemoMetec, you should know about the other risks facing this business. To help with this, we've discovered 2 warning signs for ChemoMetec (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

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.