Trelleborg (STO:TREL B) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy Trelleborg AB (publ) (STO:TREL B) 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Trelleborg's shares before the 25th of April to receive the dividend, which will be paid on the 2nd of May.

The company's next dividend payment will be kr06.75 per share, and in the last 12 months, the company paid a total of kr6.75 per share. Calculating the last year's worth of payments shows that Trelleborg has a trailing yield of 1.8% on the current share price of kr0376.20. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Trelleborg

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Trelleborg's payout ratio is modest, at just 49% of profit. A useful secondary check can be to evaluate whether Trelleborg generated enough free cash flow to afford its dividend. The good news is it paid out just 7.8% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Trelleborg earnings per share are up 4.3% per annum over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Trelleborg has lifted its dividend by approximately 8.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Trelleborg got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Trelleborg is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Trelleborg is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Trelleborg, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Trelleborg is facing. Case in point: We've spotted 1 warning sign for Trelleborg you should be aware of.

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.