Is It Smart To Buy CombinedX AB (publ) (STO:CX) Before It Goes Ex-Dividend?

CombinedX AB (publ) (STO:CX) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase CombinedX's shares before the 8th of May in order to receive the dividend, which the company will pay on the 15th of May.

The company's next dividend payment will be kr02.00 per share, on the back of last year when the company paid a total of kr2.00 to shareholders. Calculating the last year's worth of payments shows that CombinedX has a trailing yield of 4.0% on the current share price of kr050.00. 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.

See our latest analysis for CombinedX

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. Fortunately CombinedX's payout ratio is modest, at just 48% of profit. A useful secondary check can be to evaluate whether CombinedX generated enough free cash flow to afford its dividend. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that CombinedX'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 CombinedX paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see CombinedX's earnings have been skyrocketing, up 21% per annum for the past five years. CombinedX is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, CombinedX has increased its dividend at approximately 15% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is CombinedX an attractive dividend stock, or better left on the shelf? It's great that CombinedX is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in CombinedX for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for CombinedX that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.