Don't Buy Elisa Oyj (HEL:ELISA) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Elisa Oyj (HEL:ELISA) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Elisa Oyj investors that purchase the stock on or after the 16th of October will not receive the dividend, which will be paid on the 24th of October.

The company's upcoming dividend is €1.17 a share, following on from the last 12 months, when the company distributed a total of €2.35 per share to shareholders. Calculating the last year's worth of payments shows that Elisa Oyj has a trailing yield of 5.3% on the current share price of €44.50. 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! As a result, readers should always check whether Elisa Oyj has been able to grow its dividends, or if the dividend might be cut.

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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. Last year Elisa Oyj paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The company paid out 102% 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.

As Elisa Oyj's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

View our latest analysis for Elisa Oyj

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Elisa Oyj, with earnings per share up 3.6% on average over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Elisa Oyj has lifted its dividend by approximately 5.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Elisa Oyj got what it takes to maintain its dividend payments? Elisa Oyj is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in Elisa Oyj despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for Elisa Oyj (1 is concerning!) that deserve your attention before investing in the shares.

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.