Be Sure To Check Out Arjo AB (publ) (STO:ARJO B) Before It Goes Ex-Dividend

It looks like Arjo AB (publ) (STO:ARJO B) is about to go ex-dividend in the next four 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Arjo investors that purchase the stock on or after the 19th of April will not receive the dividend, which will be paid on the 25th of April.

The company's next dividend payment will be kr00.90 per share. Last year, in total, the company distributed kr0.90 to shareholders. Based on the last year's worth of payments, Arjo has a trailing yield of 1.7% on the current stock price of kr052.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Arjo can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Arjo

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Arjo paid out more than half (51%) 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. Luckily it paid out just 17% of its free cash flow last year.

It's positive to see that Arjo'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Arjo's earnings per share have been growing at 10% a year for the past five years. Arjo is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Arjo has lifted its dividend by approximately 10% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Arjo for the upcoming dividend? Arjo's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Arjo, and we would prioritise taking a closer look at it.

While it's tempting to invest in Arjo for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Arjo and you should be aware of these before buying any shares.

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.