Saga Furs Oyj (HEL:SAGCV) Could Be A Buy For Its Upcoming Dividend

It looks like Saga Furs Oyj (HEL:SAGCV) is about to go ex-dividend in the next 4 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Saga Furs Oyj's shares on or after the 29th of April, you won't be eligible to receive the dividend, when it is paid on the 8th of May.

The company's upcoming dividend is €0.66 a share, following on from the last 12 months, when the company distributed a total of €0.66 per share to shareholders. Based on the last year's worth of payments, Saga Furs Oyj stock has a trailing yield of around 6.1% on the current share price of €10.90. If you buy this business for its dividend, you should have an idea of whether Saga Furs Oyj's dividend is reliable and sustainable. So we need to investigate whether Saga Furs Oyj can afford its dividend, and if the dividend could grow.

See our latest analysis for Saga Furs 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. Saga Furs Oyj paid out a comfortable 47% of its profit last year. 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. Luckily it paid out just 22% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Saga Furs Oyj's earnings have been skyrocketing, up 43% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Saga Furs Oyj has seen its dividend decline 11% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

From a dividend perspective, should investors buy or avoid Saga Furs Oyj? Saga Furs Oyj has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Saga Furs Oyj for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Saga Furs Oyj and you should be aware of these before buying any shares.

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.