Don't Race Out To Buy FastPartner AB (publ) (STO:FPAR A) Just Because It's Going Ex-Dividend

It looks like FastPartner AB (publ) (STO:FPAR A) is about to go ex-dividend in the next three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase FastPartner's shares on or after the 29th of April will not receive the dividend, which will be paid on the 6th of May.

The company's next dividend payment will be kr00.50 per share, and in the last 12 months, the company paid a total of kr1.00 per share. Calculating the last year's worth of payments shows that FastPartner has a trailing yield of 1.4% on the current share price of kr073.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for FastPartner

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. FastPartner reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its 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. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. FastPartner reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. FastPartner's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

We update our analysis on FastPartner every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy FastPartner for the upcoming dividend? 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. Bottom line: FastPartner has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering FastPartner as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 1 warning sign for FastPartner you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.