Why It Might Not Make Sense To Buy AB Sagax (publ) (STO:SAGA A) 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 AB Sagax (publ) (STO:SAGA A) is about to go ex-dividend in just 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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, AB Sagax investors that purchase the stock on or after the 10th of May will not receive the dividend, which will be paid on the 16th of May.

The company's next dividend payment will be kr03.10 per share, and in the last 12 months, the company paid a total of kr3.10 per share. Looking at the last 12 months of distributions, AB Sagax has a trailing yield of approximately 1.1% on its current stock price of kr0277.00. 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 AB Sagax can afford its dividend, and if the dividend could grow.

See our latest analysis for AB Sagax

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. AB Sagax lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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 AB Sagax didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 34% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. AB Sagax 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, AB Sagax has increased its dividend at approximately 27% a year on average.

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

To Sum It Up

Has AB Sagax got what it takes to maintain its dividend payments? 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. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of AB Sagax.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with AB Sagax. Be aware that AB Sagax is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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.