Should Income Investors Look At P/F Bakkafrost (OB:BAKKA) Before Its 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 P/F Bakkafrost (OB:BAKKA) is about to go ex-dividend in just 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, P/F Bakkafrost investors that purchase the stock on or after the 2nd of May will not receive the dividend, which will be paid on the 21st of May.

The company's upcoming dividend is kr.8.44 a share, following on from the last 12 months, when the company distributed a total of kr.8.44 per share to shareholders. Based on the last year's worth of payments, P/F Bakkafrost has a trailing yield of 2.7% on the current stock price of kr0501.00. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

We've discovered 1 warning sign about P/F Bakkafrost. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that P/F Bakkafrost'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.

See our latest analysis for P/F Bakkafrost

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by P/F Bakkafrost's 6.7% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. P/F Bakkafrost has delivered 6.5% dividend growth per year on average over the past 10 years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. P/F Bakkafrost is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Is P/F Bakkafrost an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy P/F Bakkafrost today.

If you're not too concerned about P/F Bakkafrost's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 1 warning sign for P/F Bakkafrost 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.