Don't Race Out To Buy Gjensidige Forsikring ASA (OB:GJF) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Gjensidige Forsikring ASA (OB:GJF) is about to trade ex-dividend in the next 2 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Gjensidige Forsikring's shares before the 21st of March in order to receive the dividend, which the company will pay on the 28th of March.

The company's next dividend payment will be kr010.00 per share. Last year, in total, the company distributed kr9.00 to shareholders. Last year's total dividend payments show that Gjensidige Forsikring has a trailing yield of 3.7% on the current share price of kr0242.00. If you buy this business for its dividend, you should have an idea of whether Gjensidige Forsikring's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Gjensidige Forsikring

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. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Gjensidige Forsikring's earnings per share have dropped 5.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Gjensidige Forsikring has delivered an average of 4.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Gjensidige Forsikring is already paying out 89% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Is Gjensidige Forsikring worth buying for its dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Gjensidige Forsikring doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Gjensidige Forsikring don't faze you, it's worth being mindful of the risks involved with this business. For example - Gjensidige Forsikring has 1 warning sign we think you should be aware of.

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.