We Wouldn't Be Too Quick To Buy AS Tallinna Sadam (TAL:TSM1T) Before It Goes Ex-Dividend

Readers hoping to buy AS Tallinna Sadam (TAL:TSM1T) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase AS Tallinna Sadam's shares before the 8th of May to receive the dividend, which will be paid on the 16th of May.

The company's upcoming dividend is €0.073 a share, following on from the last 12 months, when the company distributed a total of €0.073 per share to shareholders. Based on the last year's worth of payments, AS Tallinna Sadam has a trailing yield of 6.0% on the current stock price of €1.226. 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 1 warning sign about AS Tallinna Sadam. View them for free.

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, AS Tallinna Sadam paid out 100% 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. A useful secondary check can be to evaluate whether AS Tallinna Sadam generated enough free cash flow to afford its dividend. It paid out an unsustainably high 208% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since AS Tallinna Sadam is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

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

See our latest analysis for AS Tallinna Sadam

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. AS Tallinna Sadam's earnings per share have fallen at approximately 15% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. AS Tallinna Sadam's dividend payments per share have declined at 9.6% per year on average over the past six years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is AS Tallinna Sadam worth buying for its dividend? Not only are earnings per share declining, but AS Tallinna Sadam is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of AS Tallinna Sadam.

So if you're still interested in AS Tallinna Sadam despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for AS Tallinna Sadam that you should be aware of before investing in their 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.