Should Income Investors Look At Fagerhult Group AB (STO:FAG) Before Its Ex-Dividend?

Readers hoping to buy Fagerhult Group AB (STO:FAG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Fagerhult Group's shares on or after the 3rd of May will not receive the dividend, which will be paid on the 10th of May.

The company's upcoming dividend is kr01.80 a share, following on from the last 12 months, when the company distributed a total of kr1.80 per share to shareholders. Based on the last year's worth of payments, Fagerhult Group has a trailing yield of 2.5% on the current stock price of kr072.50. If you buy this business for its dividend, you should have an idea of whether Fagerhult Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Fagerhult Group

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. Fagerhult Group paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Fagerhult Group generated enough free cash flow to afford its dividend. It distributed 29% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Fagerhult Group'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 Fagerhult Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Fagerhult Group's 6.8% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Fagerhult Group has delivered 8.4% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Is Fagerhult Group worth buying for its dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

However if you're still interested in Fagerhult Group as a potential investment, you should definitely consider some of the risks involved with Fagerhult Group. For example, we've found 1 warning sign for Fagerhult Group that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.