Is It Worth Considering Outokumpu Oyj (HEL:OUT1V) For Its Upcoming Dividend?

It looks like Outokumpu Oyj (HEL:OUT1V) is about to go ex-dividend in the next three 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 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 Outokumpu Oyj's shares before the 5th of April in order to receive the dividend, which the company will pay on the 15th of April.

The company's next dividend payment will be €0.26 per share. Last year, in total, the company distributed €0.26 to shareholders. Based on the last year's worth of payments, Outokumpu Oyj has a trailing yield of 6.5% on the current stock price of €4.03. If you buy this business for its dividend, you should have an idea of whether Outokumpu Oyj's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Outokumpu 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. Outokumpu Oyj reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. 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. It paid out 85% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Outokumpu Oyj was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Outokumpu Oyj has delivered 15% dividend growth per year on average over the past seven years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Remember, you can always get a snapshot of Outokumpu Oyj's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Should investors buy Outokumpu Oyj for the upcoming dividend? It's hard to get used to Outokumpu Oyj paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. In summary, while it has some positive characteristics, we're not inclined to race out and buy Outokumpu Oyj today.

However if you're still interested in Outokumpu Oyj as a potential investment, you should definitely consider some of the risks involved with Outokumpu Oyj. Case in point: We've spotted 1 warning sign for Outokumpu Oyj you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.