Dividend Investors: Don't Be Too Quick To Buy Terveystalo Oyj (HEL:TTALO) For Its Upcoming Dividend

Readers hoping to buy Terveystalo Oyj (HEL:TTALO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Terveystalo Oyj's shares on or after the 8th of October, you won't be eligible to receive the dividend, when it is paid on the 16th of October.

The company's next dividend payment will be €0.15 per share, and in the last 12 months, the company paid a total of €0.30 per share. Calculating the last year's worth of payments shows that Terveystalo Oyj has a trailing yield of 3.2% on the current share price of €9.49. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Terveystalo Oyj

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Terveystalo Oyj lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 24% of its free cash flow last year.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Terveystalo Oyj reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, six years ago, Terveystalo Oyj has lifted its dividend by approximately 31% a year on average.

Get our latest analysis on Terveystalo Oyj's balance sheet health here.

Final Takeaway

Is Terveystalo Oyj an attractive dividend stock, or better left on the shelf? It's hard to get used to Terveystalo Oyj paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Terveystalo Oyj is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in Terveystalo Oyj despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 2 warning signs for Terveystalo Oyj you should be aware of.

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.