It looks like Leonteq AG (VTX:LEON) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 2nd of April will not receive this dividend, which will be paid on the 6th of April.
Leonteq's next dividend payment will be CHF0.50 per share. Last year, in total, the company distributed CHF0.50 to shareholders. Last year's total dividend payments show that Leonteq has a trailing yield of 1.3% on the current share price of CHF37.88. 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 Leonteq can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Leonteq has a low and conservative payout ratio of just 15% of its income after tax.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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. Leonteq's earnings per share have fallen at approximately 5.2% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Leonteq dividends are largely the same as they were seven years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Has Leonteq got what it takes to maintain its dividend payments? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. 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.
So if you want to do more digging on Leonteq, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 2 warning signs for Leonteq 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.
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