It Might Not Be A Great Idea To Buy Kreate Group Oyj (HEL:KREATE) For Its Next Dividend

It looks like Kreate Group Oyj (HEL:KREATE) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Kreate Group Oyj's shares before the 26th of September in order to be eligible for the dividend, which will be paid on the 4th of October.

The company's next dividend payment will be €0.23 per share. Last year, in total, the company distributed €0.46 to shareholders. Calculating the last year's worth of payments shows that Kreate Group Oyj has a trailing yield of 6.5% on the current share price of €7.06. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Kreate Group Oyj can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Kreate Group Oyj

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. Kreate Group Oyj paid out 97% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Kreate Group Oyj generated enough free cash flow to afford its dividend. It paid out an unsustainably high 775% 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 Kreate Group Oyj 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 Kreate Group Oyj's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. As a result, it's definitely disappointing to see that earnings per share have declined 11% over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last two years, Kreate Group Oyj has lifted its dividend by approximately 2.2% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Kreate Group Oyj is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Is Kreate Group Oyj worth buying for its dividend? Not only are earnings per share declining, but Kreate Group Oyj is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Kreate Group Oyj despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 5 warning signs for Kreate Group Oyj (of which 2 don't sit too well with us!) you should know about.

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.