Stock Analysis

Is It Worth Considering Fondia Oyj (HEL:FONDIA) For Its Upcoming Dividend?

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It looks like Fondia Oyj (HEL:FONDIA) is about to go ex-dividend in the next two 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. In other words, investors can purchase Fondia Oyj's shares before the 25th of March in order to be eligible for the dividend, which will be paid on the 4th of April.

The company's next dividend payment will be €0.28 per share. Last year, in total, the company distributed €0.28 to shareholders. Last year's total dividend payments show that Fondia Oyj has a trailing yield of 4.2% on the current share price of €6.66. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Fondia Oyj can afford its dividend, and if the dividend could grow.

See our latest analysis for Fondia Oyj

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fondia Oyj paid out a disturbingly high 400% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. 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.

It's good to see that while Fondia Oyj's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

HLSE:FONDIA Historic Dividend March 22nd 2022

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fondia Oyj's earnings per share have plummeted approximately 31% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Fondia Oyj has seen its dividend decline 5.4% per annum on average over the past four years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Fondia Oyj an attractive dividend stock, or better left on the shelf? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (400%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the 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 Fondia 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 4 warning signs for Fondia Oyj (of which 2 are a bit concerning!) 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.

Valuation is complex, but we're helping make it simple.

Find out whether Fondia Oyj is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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