Three Days Left Until Medistim ASA (OB:MEDI) Trades Ex-Dividend

Medistim ASA (OB:MEDI) stock is about to trade ex-dividend in 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. In other words, investors can purchase Medistim's shares before the 25th of April in order to be eligible for the dividend, which will be paid on the 6th of May.

The company's upcoming dividend is kr04.50 a share, following on from the last 12 months, when the company distributed a total of kr4.50 per share to shareholders. Based on the last year's worth of payments, Medistim has a trailing yield of 2.6% on the current stock price of kr0176.00. If you buy this business for its dividend, you should have an idea of whether Medistim's dividend is reliable and sustainable. As a result, readers should always check whether Medistim has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Medistim

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. Its dividend payout ratio is 79% 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. It paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone 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.

While Medistim's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Medistim to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Medistim 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Medistim's earnings per share have been growing at 13% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Medistim has increased its dividend at approximately 19% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Medistim worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Medistim paid out a much higher percentage of its free cash flow, which makes us uncomfortable. To summarise, Medistim looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Want to learn more about Medistim's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.