Should Income Investors Look At Outokumpu Oyj (HEL:OUT1V) Before Its Ex-Dividend?

It looks like Outokumpu Oyj (HEL:OUT1V) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 1st of April, you won't be eligible to receive this dividend, when it is paid on the 9th of April.

Outokumpu Oyj's next dividend payment will be €0.10 per share. Last year, in total, the company distributed €0.10 to shareholders. Based on the last year's worth of payments, Outokumpu Oyj has a trailing yield of 4.2% on the current stock price of €2.39. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Outokumpu Oyj

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. Outokumpu Oyj reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Outokumpu Oyj didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Outokumpu Oyj reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Outokumpu Oyj has seen its dividend decline 36% per annum on average over the past ten years, which is not great to see.

Get our latest analysis on Outokumpu Oyj's balance sheet health here.

To Sum It Up

Should investors buy Outokumpu Oyj for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Outokumpu Oyj today.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for Outokumpu Oyj and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.