Don't Buy LapWall Oyj (HEL:LAPWALL) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see LapWall Oyj (HEL:LAPWALL) is about to trade ex-dividend in the next three 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. Accordingly, LapWall Oyj investors that purchase the stock on or after the 19th of March will not receive the dividend, which will be paid on the 27th of March.

The company's next dividend payment will be €0.18 per share. Last year, in total, the company distributed €0.18 to shareholders. Based on the last year's worth of payments, LapWall Oyj has a trailing yield of 3.9% on the current stock price of €4.56. If you buy this business for its dividend, you should have an idea of whether LapWall Oyj's dividend is reliable and sustainable. As a result, readers should always check whether LapWall Oyj has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for LapWall Oyj

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. LapWall Oyj paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. As a result, it's definitely disappointing to see that earnings per share have declined 8.9% over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. LapWall Oyj has delivered 8.7% dividend growth per year on average over the past three years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Has LapWall Oyj got what it takes to maintain its dividend payments? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with LapWall Oyj. For example, LapWall Oyj has 3 warning signs (and 1 which is significant) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.