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 Link Prop Investment AB (publ) (STO:LINKAB) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Link Prop Investment's shares before the 7th of January in order to receive the dividend, which the company will pay on the 13th of January.
The company's next dividend payment will be kr2.00 per share. Last year, in total, the company distributed kr8.00 to shareholders. Looking at the last 12 months of distributions, Link Prop Investment has a trailing yield of approximately 5.1% on its current stock price of SEK156. If you buy this business for its dividend, you should have an idea of whether Link Prop Investment's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Link Prop Investment generated enough free cash flow to afford its dividend. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Link Prop Investment'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Link Prop Investment's earnings per share have been growing at 17% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Link Prop Investment has delivered 12% dividend growth per year on average over the past six years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
From a dividend perspective, should investors buy or avoid Link Prop Investment? Link Prop Investment's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Link Prop Investment, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 5 warning signs for Link Prop Investment (1 shouldn't be ignored) you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.