Dividend Investors: Don't Be Too Quick To Buy Link Prop Investment AB (publ) (STO:LINKAB) For Its Upcoming Dividend

Readers hoping to buy Link Prop Investment AB (publ) (STO:LINKAB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 9th of April to receive the dividend, which will be paid on the 17th of April.

Link Prop Investment's upcoming dividend is kr2.00 a share, following on from the last 12 months, when the company distributed a total of kr8.00 per share to shareholders. Based on the last year's worth of payments, Link Prop Investment has a trailing yield of 7.1% on the current stock price of SEK112. 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 Link Prop Investment can afford its dividend, and if the dividend could grow.

View our latest analysis for Link Prop Investment

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Link Prop Investment paid out 110% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Link Prop Investment generated enough free cash flow to afford its dividend. The company paid out 95% 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.

As Link Prop Investment's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Link Prop Investment paid out over the last 12 months.

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. With that in mind, we're encouraged by the steady growth at Link Prop Investment, with earnings per share up 6.7% on average over the last three years. Earnings per share have been growing steadily, although a payout ratio this high suggests future growth is likely to slow, and the dividend may also be at risk of a cut if business enters a downturn.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, five years ago, Link Prop Investment has lifted its dividend by approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Link Prop Investment for the upcoming dividend? Link Prop Investment is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. Bottom line: Link Prop Investment has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in Link Prop Investment and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Link Prop Investment is showing 5 warning signs in our investment analysis, and 1 of those is significant...

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.

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