Stock Analysis

Is It Smart To Buy Epiroc AB (publ) (STO:EPI A) Before It Goes Ex-Dividend?

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It looks like Epiroc AB (publ) (STO:EPI A) 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. Thus, you can purchase Epiroc's shares before the 26th of April in order to receive the dividend, which the company will pay on the 2nd of May.

The company's upcoming dividend is kr1.50 a share, following on from the last 12 months, when the company distributed a total of kr3.00 per share to shareholders. Based on the last year's worth of payments, Epiroc has a trailing yield of 1.4% on the current stock price of SEK211.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Epiroc can afford its dividend, and if the dividend could grow.

See our latest analysis for Epiroc

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. Epiroc paid out 51% of its earnings to investors last year, a normal payout level for most businesses. 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. Fortunately, it paid out only 45% of its free cash flow in the past year.

It's positive to see that Epiroc'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 the company's payout ratio, plus analyst estimates of its future dividends.

OM:EPI A Historic Dividend April 22nd 2022

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Epiroc's earnings per share have risen 17% per annum over the last five years. Epiroc has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, three years ago, Epiroc has lifted its dividend by approximately 13% 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

Has Epiroc got what it takes to maintain its dividend payments? We like Epiroc's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Epiroc is facing. In terms of investment risks, we've identified 1 warning sign with Epiroc and understanding them should be part of your investment process.

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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