Don't Race Out To Buy Hrvatski Telekom d.d. (ZGSE:HT) Just Because It's Going Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hrvatski Telekom d.d. (ZGSE:HT) is about to go ex-dividend in just 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. 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. Accordingly, Hrvatski Telekom d.d investors that purchase the stock on or after the 10th of May will not receive the dividend, which will be paid on the 20th of May.

The company's next dividend payment will be €1.53 per share, on the back of last year when the company paid a total of €1.53 to shareholders. Based on the last year's worth of payments, Hrvatski Telekom d.d stock has a trailing yield of around 5.0% on the current share price of €30.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Hrvatski Telekom 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. Last year, Hrvatski Telekom d.d paid out 91% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Over the past year it paid out 191% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Hrvatski Telekom d.d does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

As Hrvatski Telekom d.d'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.

Click here to see how much of its profit Hrvatski Telekom d.d paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Hrvatski Telekom d.d's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hrvatski Telekom d.d's dividend payments per share have declined at 5.4% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Is Hrvatski Telekom d.d worth buying for its dividend? Not only are earnings per share flat, but Hrvatski Telekom d.d is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. Bottom line: Hrvatski Telekom d.d has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Hrvatski Telekom d.d and want to know more, you'll find it very useful to know what risks this stock faces. For example - Hrvatski Telekom d.d has 2 warning signs we think you should be aware of.

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.