Just Three Days Till Tele2 AB (publ) (STO:TEL2 B) Will Be Trading Ex-Dividend

Tele2 AB (publ) (STO:TEL2 B) stock is about to trade ex-dividend in 3 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 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. In other words, investors can purchase Tele2's shares before the 16th of May in order to be eligible for the dividend, which will be paid on the 22nd of May.

The company's next dividend payment will be kr03.45 per share, on the back of last year when the company paid a total of kr6.90 to shareholders. Calculating the last year's worth of payments shows that Tele2 has a trailing yield of 6.6% on the current share price of kr0104.55. 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 Tele2 can afford its dividend, and if the dividend could grow.

See our latest analysis for Tele2

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tele2 distributed an unsustainably high 129% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Tele2 generated enough free cash flow to afford its dividend. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Tele2's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Tele2's earnings have been skyrocketing, up 24% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tele2's dividend payments are effectively flat on where they were 10 years ago.

Final Takeaway

Should investors buy Tele2 for the upcoming dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tele2 today.

If you want to look further into Tele2, it's worth knowing the risks this business faces. Case in point: We've spotted 2 warning signs for Tele2 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.