Why It Might Not Make Sense To Buy Saab AB (publ) (STO:SAAB B) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Saab AB (publ) (STO:SAAB B) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 14th of April in order to be eligible for this dividend, which will be paid on the 20th of April.

Saab's next dividend payment will be kr4.70 per share, on the back of last year when the company paid a total of kr4.70 to shareholders. Looking at the last 12 months of distributions, Saab has a trailing yield of approximately 1.9% on its current stock price of SEK241.3. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Saab has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Saab

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. Saab is paying out an acceptable 58% of its profit, a common payout level among most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Saab's 8.9% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Saab has increased its dividend at approximately 7.6% a year on average. 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.

The Bottom Line

From a dividend perspective, should investors buy or avoid Saab? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.

If you're not too concerned about Saab's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 4 warning signs for Saab that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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