Is It Smart To Buy AB Traction (STO:TRAC B) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AB Traction (STO:TRAC B) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase AB Traction's shares on or after the 3rd of May, you won't be eligible to receive the dividend, when it is paid on the 10th of May.

The company's next dividend payment will be kr010.45 per share. Last year, in total, the company distributed kr10.45 to shareholders. Calculating the last year's worth of payments shows that AB Traction has a trailing yield of 3.9% on the current share price of kr0266.00. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for AB Traction

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. AB Traction paid out 57% of its earnings to investors last year, a normal payout level for most businesses.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

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

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. Fortunately for readers, AB Traction's earnings per share have been growing at 12% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. AB Traction has delivered an average of 16% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Should investors buy AB Traction for the upcoming dividend? Earnings per share are growing at an attractive rate, and AB Traction is paying out a bit over half its profits. In summary, AB Traction appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

In light of that, while AB Traction has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for AB Traction you should be aware of.

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.