Income Investors Should Know That Elanders AB (publ) (STO:ELAN B) Goes Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Elanders AB (publ) (STO:ELAN B) is about to trade ex-dividend in the next 2 days. The ex-dividend date is commonly two business days 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Elanders' shares before the 24th of April in order to receive the dividend, which the company will pay on the 30th of April.

The company's next dividend payment will be kr04.15 per share, and in the last 12 months, the company paid a total of kr4.15 per share. Last year's total dividend payments show that Elanders has a trailing yield of 6.0% on the current share price of kr069.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. It paid out 83% 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 concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 12% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Elanders

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

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. This is why it's a relief to see Elanders earnings per share are up 3.5% per annum over the last five years. A high payout ratio of 83% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Elanders could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Elanders has delivered 14% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Elanders? While earnings per share growth has been modest, Elanders's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, it's hard to get excited about Elanders from a dividend perspective.

While it's tempting to invest in Elanders for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 4 warning signs we've spotted with Elanders (including 1 which is potentially serious).

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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.