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

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TietoEVRY Oyj (HEL:TIETO) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase TietoEVRY Oyj's shares on or after the 20th of September, you won't be eligible to receive the dividend, when it is paid on the 3rd of October.

The company's next dividend payment will be €0.735 per share, and in the last 12 months, the company paid a total of €1.47 per share. Last year's total dividend payments show that TietoEVRY Oyj has a trailing yield of 7.9% on the current share price of €18.68. If you buy this business for its dividend, you should have an idea of whether TietoEVRY Oyj's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for TietoEVRY Oyj

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. TietoEVRY Oyj paid out 106% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether TietoEVRY Oyj generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (87%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while TietoEVRY Oyj's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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 fall far enough, the company could be forced to cut its dividend. So we're not too excited that TietoEVRY Oyj's earnings are down 3.6% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. TietoEVRY Oyj has delivered 5.0% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. TietoEVRY Oyj is already paying out 106% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Is TietoEVRY Oyj worth buying for its dividend? It's never fun to see a company's earnings per share in retreat. What's more, TietoEVRY Oyj is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of TietoEVRY Oyj don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for TietoEVRY Oyj and you should be aware of them before buying any shares.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.