Don't Race Out To Buy Wirtek A/S (CPH:WIRTEK) Just Because It's Going Ex-Dividend

Readers hoping to buy Wirtek A/S (CPH:WIRTEK) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Wirtek's shares on or after the 24th of April will not receive the dividend, which will be paid on the 28th of April.

The company's upcoming dividend is kr.0.23 a share, following on from the last 12 months, when the company distributed a total of kr.0.23 per share to shareholders. Based on the last year's worth of payments, Wirtek stock has a trailing yield of around 3.8% on the current share price of kr.6.10. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 5 warning signs about Wirtek. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Wirtek generated enough free cash flow to afford its dividend. Wirtek paid out more free cash flow than it generated - 163%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Wirtek'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 Wirtek's ability to maintain its dividend.

Check out our latest analysis for Wirtek

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Wirtek, with earnings per share up 4.5% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Wirtek has delivered 9.8% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Wirtek worth buying for its dividend? Wirtek is paying out a reasonable percentage of its income and an uncomfortably high 163% of its cash flow as dividends. At least earnings per share have been growing steadily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Wirtek.

With that in mind though, if the poor dividend characteristics of Wirtek don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 5 warning signs for Wirtek (2 are potentially serious) 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.