Don't Buy Caverion Oyj (HEL:CAV1V) For Its Next Dividend Without Doing These Checks

By
Simply Wall St
Published
March 19, 2021
HLSE:CAV1V
Source: Shutterstock

It looks like Caverion Oyj (HEL:CAV1V) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 25th of March will not receive the dividend, which will be paid on the 7th of April.

Caverion Oyj's next dividend payment will be €0.20 per share, which looks like a nice increase on last year, when the company distributed a total of €0.10 to shareholders. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Caverion Oyj

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, Caverion Oyj paid out 216% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 0.08% of its free cash flow in the last year.

It's good to see that while Caverion Oyj's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

historic-dividend
HLSE:CAV1V Historic Dividend March 20th 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Caverion Oyj's earnings per share have plummeted approximately 34% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Caverion Oyj has seen its dividend decline 11% per annum on average over the past seven years, which is not great to see. 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.

To Sum It Up

Should investors buy Caverion Oyj for the upcoming dividend? It's never great to see earnings per share declining, especially when a company is paying out 216% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Caverion Oyj don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for Caverion Oyj that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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