Dividend Investors: Don't Be Too Quick To Buy Acrinova AB (publ) (STO:ACRI A) For Its Upcoming Dividend

Acrinova AB (publ) (STO:ACRI A) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day 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. Therefore, if you purchase Acrinova's shares on or after the 7th of May, you won't be eligible to receive the dividend, when it is paid on the 14th of May.

The company's next dividend payment will be kr00.15 per share, on the back of last year when the company paid a total of kr0.30 to shareholders. Calculating the last year's worth of payments shows that Acrinova has a trailing yield of 3.7% on the current share price of kr08.15. If you buy this business for its dividend, you should have an idea of whether Acrinova's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Acrinova

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 261% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 39% of its free cash flow in the past year.

It's good to see that while Acrinova's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Acrinova's earnings per share have plummeted approximately 46% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Acrinova's dividend payments per share have declined at 4.0% per year on average over the past eight years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Has Acrinova got what it takes to maintain its dividend payments? It's never great to see earnings per share declining, especially when a company is paying out 261% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Acrinova as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 6 warning signs we've spotted with Acrinova (including 1 which shouldn't be ignored).

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.