Dividend Investors: Don't Be Too Quick To Buy Formpipe Software AB (publ) (STO:FPIP) For Its Upcoming Dividend

Readers hoping to buy Formpipe Software AB (publ) (STO:FPIP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Accordingly, Formpipe Software investors that purchase the stock on or after the 26th of April will not receive the dividend, which will be paid on the 3rd of May.

The company's next dividend payment will be kr00.25 per share, on the back of last year when the company paid a total of kr0.50 to shareholders. Looking at the last 12 months of distributions, Formpipe Software has a trailing yield of approximately 1.7% on its current stock price of kr029.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Formpipe Software

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. Formpipe Software paid out 73% of its earnings to investors last year, a normal payout level for most businesses.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Formpipe Software's earnings are down 2.2% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Formpipe Software has lifted its dividend by approximately 22% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Is Formpipe Software an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Formpipe Software's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

If you want to look further into Formpipe Software, it's worth knowing the risks this business faces. Case in point: We've spotted 1 warning sign for Formpipe Software you should be aware of.

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.