Should Income Investors Look At Husqvarna AB (publ) (STO:HUSQ B) Before Its Ex-Dividend?
Readers hoping to buy Husqvarna AB (publ) (STO:HUSQ B) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Husqvarna investors that purchase the stock on or after the 19th of October will not receive the dividend, which will be paid on the 23rd of October.
The company's next dividend payment will be kr00.75 per share. Last year, in total, the company distributed kr1.25 to shareholders. Calculating the last year's worth of payments shows that Husqvarna has a trailing yield of 3.7% on the current share price of kr033.79. 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 Husqvarna has been able to grow its dividends, or if the dividend might be cut.
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. Husqvarna paid out 50% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Husqvarna generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Husqvarna's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
View our latest analysis for Husqvarna
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Husqvarna's earnings per share have fallen at approximately 11% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Husqvarna's dividend payments per share have declined at 2.7% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Final Takeaway
Should investors buy Husqvarna for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Husqvarna's dividend merits.
So if you want to do more digging on Husqvarna, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 1 warning sign for Husqvarna that we recommend you consider before investing in the business.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.