Don't Race Out To Buy Copenhagen Capital A/S (CPH:CPHCAP ST) Just Because It's Going Ex-Dividend

Copenhagen Capital A/S (CPH:CPHCAP ST) is about to trade ex-dividend in the next four days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Copenhagen Capital's shares before the 30th of April to receive the dividend, which will be paid on the 2nd of May.

The company's next dividend payment will be kr.0.06 per share, on the back of last year when the company paid a total of kr.0.06 to shareholders. Based on the last year's worth of payments, Copenhagen Capital stock has a trailing yield of around 1.1% on the current share price of kr.5.398. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Copenhagen Capital has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Copenhagen Capital 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. 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. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

Check out our latest analysis for Copenhagen Capital

Click here to see how much of its profit Copenhagen Capital paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Copenhagen Capital's earnings per share have plummeted approximately 44% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Copenhagen Capital has seen its dividend decline 23% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Should investors buy Copenhagen Capital for the upcoming dividend? It's never great to see earnings per share declining, especially when a company is paying out -24% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Copenhagen Capital's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Copenhagen Capital.

So if you're still interested in Copenhagen Capital despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Copenhagen Capital is showing 4 warning signs in our investment analysis, and 2 of those are a bit concerning...

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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.