Is It Smart To Buy OKEA ASA (OB:OKEA) Before It Goes Ex-Dividend?

It looks like OKEA ASA (OB:OKEA) is about to go ex-dividend in the next 3 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. 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 OKEA's shares on or after the 2nd of September will not receive the dividend, which will be paid on the 15th of September.

The company's next dividend payment will be kr1.00 per share. If you buy this business for its dividend, you should have an idea of whether OKEA's dividend is reliable and sustainable. As a result, readers should always check whether OKEA has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for OKEA

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. OKEA has a low and conservative payout ratio of just 15% of its income after tax. 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 good news is it paid out just 3.9% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see OKEA's earnings have been skyrocketing, up 46% per annum for the past five years. OKEA looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

This is OKEA's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

The Bottom Line

Should investors buy OKEA for the upcoming dividend? We love that OKEA is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with OKEA and understanding them should be part of your investment process.

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.

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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.