Don't Buy Trans Polonia S.A. (WSE:TRN) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Trans Polonia S.A. (WSE:TRN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day 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 two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Trans Polonia's shares before the 16th of August to receive the dividend, which will be paid on the 30th of August.

The company's next dividend payment will be zł0.11 per share, and in the last 12 months, the company paid a total of zł0.11 per share. Based on the last year's worth of payments, Trans Polonia has a trailing yield of 3.5% on the current stock price of zł3.13. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Trans Polonia

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Trans Polonia is paying out an acceptable 63% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Trans Polonia generated enough free cash flow to afford its dividend. It paid out 89% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Trans Polonia'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.

Click here to see how much of its profit Trans Polonia paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Trans Polonia's earnings per share have fallen at approximately 7.3% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Trans Polonia has seen its dividend decline 4.1% per annum on average over the past nine years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Is Trans Polonia an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Trans Polonia's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Trans Polonia.

With that in mind though, if the poor dividend characteristics of Trans Polonia don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 4 warning signs for Trans Polonia that we recommend you consider before investing in the business.

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.