Should Income Investors Look At Skåne-möllan AB (publ) (STO:SKMO) Before Its Ex-Dividend?

By
Simply Wall St
Published
April 25, 2021
OM:SKMO
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Skåne-möllan AB (publ) (STO:SKMO) is about to trade ex-dividend in the next two days. Ex-dividend means that investors that purchase the stock on or after the 29th of April will not receive this dividend, which will be paid on the 5th of May.

Skåne-möllan's next dividend payment will be kr12.00 per share, on the back of last year when the company paid a total of kr12.00 to shareholders. Last year's total dividend payments show that Skåne-möllan has a trailing yield of 2.2% on the current share price of SEK550. 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.

See our latest analysis for Skåne-möllan

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. Skåne-möllan paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Skåne-möllan'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 Skåne-möllan paid out over the last 12 months.

historic-dividend
OM:SKMO Historic Dividend April 26th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Skåne-möllan's earnings have been skyrocketing, up 22% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Skåne-möllan has seen its dividend decline 0.8% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Is Skåne-möllan worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Skåne-möllan's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 65% and 80% respectively. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So while Skåne-möllan looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 2 warning signs for Skåne-möllan you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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