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Should Income Investors Look At Ponsse Oyj (HEL:PON1V) Before Its Ex-Dividend?

Ponsse Oyj (HEL:PON1V) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 2nd of April in order to be eligible for this dividend, which will be paid on the 14th of April.

Ponsse Oyj's next dividend payment will be €0.85 per share. Last year, in total, the company distributed €0.85 to shareholders. Based on the last year's worth of payments, Ponsse Oyj has a trailing yield of 4.2% on the current stock price of €20.25. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Ponsse Oyj has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Ponsse 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. Ponsse Oyj paid out a comfortable 46% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 157% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Ponsse Oyj'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. Cash is king, as they say, and were Ponsse Oyj to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

HLSE:PON1V Historical Dividend Yield March 30th 2020
HLSE:PON1V Historical Dividend Yield March 30th 2020

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Ponsse Oyj's earnings per share have risen 12% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ponsse Oyj has delivered 24% dividend growth per year on average over the past ten years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Ponsse Oyj an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Ponsse Oyj for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Ponsse Oyj that you should be aware of before investing in their 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.