It looks like Tele2 AB (released) (STO: TEL2 B) is about to be ex-dividend within the next 4 days. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you would not appear on the company’s books on the date of registration. Thus, you can buy Tele2 shares before June 29 in order to receive the dividend that the company will pay on July 5.

The future dividend of the company is 3.00 kr per share, following the last 12 months when the company has distributed a total of 9.00 kr per share to the shareholders. Last year’s total dividend payouts show Tele2 has a rolling 7.7% yield on the current share price of SEK 116.25. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

Check out our latest review for Tele2

Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. Tele2 pays an acceptable level of 57% of its profits, a payment level common to most companies. A useful secondary check can be to assess whether Tele2 has generated enough free cash flow to pay its dividend. In the past year, it paid 68% of its free cash flow in the form of dividends, within the range usual for most companies.

It is positive to see that Tele2’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a larger margin of security before the dividend is cut.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

Have profits and dividends increased?

Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. Investors love dividends, so if earnings go down and the dividend is reduced, expect a stock to be sold massively at the same time. That’s why it’s heartwarming to see Tele2’s profits skyrocket, rising 26% annually over the past five years. Management seems to strike a good balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have grown rapidly, and in combination with some reinvestment and an average payout ratio, the stock may have decent dividend prospects going forward.

Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Tele2 has seen its dividend drop by 10% per year on average over the past 10 years, which is not great to see. Tele2 is a rare case where dividends fell as earnings per share improved. It is unusual to see this and could indicate unstable conditions in the core business, or more rarely an increased focus on reinvesting profits.

To summarize

Does Tele2 have what it takes to maintain its dividend payments? It is good to see that profits go up because all of the best dividend paying stocks increase their profits significantly over the long term. This is why we are happy to see Tele2’s earnings per share increase, even though, as we have seen, the company pays more than half of its earnings and cash flow – 57% and 68% respectively. . Overall, we are not extremely bearish on the stock, but there are probably better dividend investments.

On that note, you’ll want to research the risks Tele2 faces. Every business has risks, and we have spotted 4 warning signs for Tele2 you should know.

If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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