Stock Analysis

Aallon Group Oyj (HEL:AALLON) Could Be A Buy For Its Upcoming Dividend

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Aallon Group Oyj (HEL:AALLON) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Aallon Group Oyj's shares on or after the 24th of March, you won't be eligible to receive the dividend, when it is paid on the 3rd of April.

The company's next dividend payment will be €0.21 per share, on the back of last year when the company paid a total of €0.21 to shareholders. Looking at the last 12 months of distributions, Aallon Group Oyj has a trailing yield of approximately 2.0% on its current stock price of €10.6. 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! As a result, readers should always check whether Aallon Group Oyj has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Aallon Group Oyj

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 77% 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. We'd be concerned if earnings began to decline. 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. Luckily it paid out just 23% of its free cash flow last year.

It's positive to see that Aallon Group Oyj's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

HLSE:AALLON Historic Dividend March 19th 2023

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Aallon Group Oyj's earnings have been skyrocketing, up 35% per annum for the past three years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Aallon Group Oyj has increased its dividend at approximately 5.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is Aallon Group Oyj worth buying for its dividend? Aallon Group Oyj's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Aallon Group Oyj looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Aallon Group Oyj has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Aallon Group Oyj and understanding them should be part of your investment process.

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

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