Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Tre Kronor Property Investment AB (publ) (STO:3KR) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 28th of April will not receive this dividend, which will be paid on the 5th of May.
Tre Kronor Property Investment's next dividend payment will be kr2.05 per share, on the back of last year when the company paid a total of kr8.25 to shareholders. Calculating the last year's worth of payments shows that Tre Kronor Property Investment has a trailing yield of 6.9% on the current share price of SEK119. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Tre Kronor Property Investment has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Tre Kronor Property Investment is paying out an acceptable 51% of its profit, a common payout level among most companies. 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 company paid out 108% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While Tre Kronor Property Investment's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Tre Kronor Property Investment's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. From this perspective, we're disturbed to see earnings per share plunged 47% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.
Tre Kronor Property Investment also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tre Kronor Property Investment has delivered 1.6% dividend growth per year on average over the past two years.
Is Tre Kronor Property Investment an attractive dividend stock, or better left on the shelf? Tre Kronor Property Investment had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of Tre Kronor Property Investment don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 5 warning signs for Tre Kronor Property Investment (of which 2 shouldn't be ignored!) you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top 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 email@example.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.
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