We Wouldn't Be Too Quick To Buy Tallinna Kaubamaja Grupp AS (TAL:TKM1T) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tallinna Kaubamaja Grupp AS (TAL:TKM1T) is about to trade ex-dividend in the next 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. 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. Thus, you can purchase Tallinna Kaubamaja Grupp's shares before the 30th of March in order to receive the dividend, which the company will pay on the 5th of April.

The company's next dividend payment will be €0.68 per share, on the back of last year when the company paid a total of €0.68 to shareholders. Looking at the last 12 months of distributions, Tallinna Kaubamaja Grupp has a trailing yield of approximately 6.5% on its current stock price of €10.48. 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.

See our latest analysis for Tallinna Kaubamaja Grupp

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. Last year, Tallinna Kaubamaja Grupp paid out 94% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 98% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Cash is slightly more important than profit from a dividend perspective, but given Tallinna Kaubamaja Grupp's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Tallinna Kaubamaja Grupp's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Tallinna Kaubamaja Grupp has lifted its dividend by approximately 6.9% a year on average.

To Sum It Up

Should investors buy Tallinna Kaubamaja Grupp for the upcoming dividend? It's been unable to generate earnings growth, yet is paying out an uncomfortably high percentage of both its profits (94%) and cash flow (98%) as dividends. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Tallinna Kaubamaja Grupp.

Although, if you're still interested in Tallinna Kaubamaja Grupp and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 2 warning signs for Tallinna Kaubamaja Grupp and you should be aware of these before buying any shares.

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.