Mälaråsen AB (publ) (NGM:MALAR) Stock Goes Ex-Dividend In Just Four Days

Readers hoping to buy Mälaråsen AB (publ) (NGM:MALAR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 7th of January.

Mälaråsen's next dividend payment will be kr2.50 per share. Last year, in total, the company distributed kr5.00 to shareholders. Based on the last year's worth of payments, Mälaråsen has a trailing yield of 3.2% on the current stock price of SEK157. 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 Mälaråsen can afford its dividend, and if the dividend could grow.

View our latest analysis for Mälaråsen

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Mälaråsen paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Mälaråsen generated enough free cash flow to afford its dividend. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Mälaråsen'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 how much of its profit Mälaråsen paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Mälaråsen has grown its earnings rapidly, up 124% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Mälaråsen could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mälaråsen's dividend payments per share have declined at 16% per year on average over the past four years, which is uninspiring. Mälaråsen is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Mälaråsen got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Mälaråsen is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Mälaråsen's dividend merits.

While it's tempting to invest in Mälaråsen for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 5 warning signs we've spotted with Mälaråsen (including 1 which is a bit unpleasant).

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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