Don't Race Out To Buy Suominen Oyj (HEL:SUY1V) Just Because It's Going Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Suominen Oyj (HEL:SUY1V) is about to go ex-dividend in just three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Suominen Oyj investors that purchase the stock on or after the 5th of April will not receive the dividend, which will be paid on the 15th of April.

The company's next dividend payment will be €0.10 per share, and in the last 12 months, the company paid a total of €0.10 per share. Calculating the last year's worth of payments shows that Suominen Oyj has a trailing yield of 3.6% on the current share price of €2.80. If you buy this business for its dividend, you should have an idea of whether Suominen Oyj's dividend is reliable and sustainable. So we need to investigate whether Suominen Oyj can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Suominen Oyj

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Suominen Oyj paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. 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. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.

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

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. Suominen 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, Suominen Oyj has increased its dividend at approximately 8.0% a year on average.

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

The Bottom Line

Has Suominen Oyj got what it takes to maintain its dividend payments? It's hard to get used to Suominen Oyj paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Suominen Oyj has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Suominen Oyj as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 1 warning sign for Suominen Oyj you should know about.

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.