Only Four Days Left To Cash In On Ericsson Nikola Tesla d.d's (ZGSE:ERNT) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ericsson Nikola Tesla d.d. (ZGSE:ERNT) is about to trade ex-dividend in the next four 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. In other words, investors can purchase Ericsson Nikola Tesla d.d's shares before the 2nd of July in order to be eligible for the dividend, which will be paid on the 17th of July.

The company's next dividend payment will be €15.00 per share. Last year, in total, the company distributed €10.00 to shareholders. Based on the last year's worth of payments, Ericsson Nikola Tesla d.d has a trailing yield of 4.7% on the current stock price of €211.00. If you buy this business for its dividend, you should have an idea of whether Ericsson Nikola Tesla d.d's dividend is reliable and sustainable. So we need to investigate whether Ericsson Nikola Tesla d.d can afford its dividend, and if the dividend could grow.

See our latest analysis for Ericsson Nikola Tesla d.d

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. Ericsson Nikola Tesla d.d paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Ericsson Nikola Tesla d.d's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Ericsson Nikola Tesla d.d paid out over the last 12 months.

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. This is why it's a relief to see Ericsson Nikola Tesla d.d earnings per share are up 6.3% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ericsson Nikola Tesla d.d's dividend payments per share have declined at 13% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Has Ericsson Nikola Tesla d.d got what it takes to maintain its dividend payments? Earnings per share growth has been modest and Ericsson Nikola Tesla d.d paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, it's hard to get excited about Ericsson Nikola Tesla d.d from a dividend perspective.

While it's tempting to invest in Ericsson Nikola Tesla d.d for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Ericsson Nikola Tesla d.d you should know about.

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.

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