Why It Might Not Make Sense To Buy Adtraction Group AB (STO:ADTR) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Adtraction Group AB (STO:ADTR) is about to go ex-dividend in just three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Adtraction Group investors that purchase the stock on or after the 23rd of April will not receive the dividend, which will be paid on the 29th of April.

The company's next dividend payment will be kr01.00 per share, on the back of last year when the company paid a total of kr2.00 to shareholders. Based on the last year's worth of payments, Adtraction Group has a trailing yield of 6.3% on the current stock price of kr032.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

We've discovered 2 warning signs about Adtraction Group. View them for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Adtraction Group reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 67% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Check out our latest analysis for Adtraction Group

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Adtraction Group was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Unfortunately Adtraction Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Get our latest analysis on Adtraction Group's balance sheet health here.

The Bottom Line

Is Adtraction Group an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Adtraction Group as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Adtraction Group that we recommend you consider before investing in the business.

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.