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 Metsä Board Oyj (HEL:METSB) is about to go ex-dividend in just 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Metsä Board Oyj's shares before the 25th of March in order to receive the dividend, which the company will pay on the 7th of April.
The company's next dividend payment will be €0.41 per share, and in the last 12 months, the company paid a total of €0.41 per share. Calculating the last year's worth of payments shows that Metsä Board Oyj has a trailing yield of 4.4% on the current share price of €9.23. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Metsä Board Oyj paid out a comfortable 50% 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. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
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. It's encouraging to see Metsä Board Oyj has grown its earnings rapidly, up 26% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Metsä Board Oyj has delivered an average of 24% per year annual increase in its dividend, based on the past nine years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
From a dividend perspective, should investors buy or avoid Metsä Board Oyj? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Metsä Board Oyj, and we would prioritise taking a closer look at it.
While it's tempting to invest in Metsä Board Oyj for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Metsä Board Oyj (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.
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.