Income Investors Should Know That Lemonsoft Oyj (HEL:LEMON) Goes Ex-Dividend Soon

Lemonsoft Oyj (HEL:LEMON) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Lemonsoft Oyj's shares on or after the 10th of April will not receive the dividend, which will be paid on the 22nd of April.

The company's next dividend payment will be €0.14 per share, on the back of last year when the company paid a total of €0.14 to shareholders. Looking at the last 12 months of distributions, Lemonsoft Oyj has a trailing yield of approximately 2.5% on its current stock price of €5.66. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Lemonsoft Oyj

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Lemonsoft Oyj paid out a comfortable 49% of its profit last year. A useful secondary check can be to evaluate whether Lemonsoft Oyj generated enough free cash flow to afford its dividend. The company paid out 107% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Lemonsoft Oyj paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Lemonsoft Oyj to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Lemonsoft Oyj's earnings have been skyrocketing, up 21% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Lemonsoft Oyj has delivered an average of 3.8% per year annual increase in its dividend, based on the past two years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Has Lemonsoft Oyj got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Lemonsoft Oyj today.

On that note, you'll want to research what risks Lemonsoft Oyj is facing. Case in point: We've spotted 1 warning sign for Lemonsoft Oyj you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.