Why it might not make sense to buy Sampo Oyj (HEL:SAMPO) for its upcoming dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Sampo Oyj (HEL:SAMPO) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company’s record date. This is the date on which the company determines which shareholders are entitled to dividends. It is important to be aware of the ex-dividend date because any transaction on the stock must be settled on or before the record date. So you can buy Sampo Oyj shares before April 26 to receive the dividend that the company will pay on May 7.

The company’s next dividend payment will be €1.80 per share, and in the last twelve months the company has paid out a total of €1.60 per share. Based on the last year’s worth of payments, Sampo Oyj stock has a rolling yield of approximately 4.0% on the current share price of €39.87. If you buy this company for its dividend, you should have an idea of ​​whether Sampo Oyj’s dividend is reliable and sustainable. We need to see if the dividend is covered by profits and if it grows.

Check out our latest analysis for Sampo Oyj

Dividends are typically paid out of company profits, so if a company pays out more than it earned then its dividend is usually at higher risk of being cut. The dividend payout ratio stands at 76% of earnings, meaning the company pays out most of its profits. The relatively limited earnings reinvestment could slow the pace of future earnings growth. It could become a problem if profits start to decline.

Companies that pay out less in dividends than they earn in profits tend to have more sustainable dividends. The lower the payout ratio, the more wiggle room the company has before it could be forced to cut its dividend.

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

Have profits and dividends grown?

When earnings decline, it becomes much more difficult to analyze and safely own dividend companies. If earnings decline and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Sampo Oyj’s earnings per share have fallen to around 6.8% per year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another important way to gauge a company’s dividend prospects is to measure the historical rate of dividend growth. Sampo Oyj’s dividend payments have essentially remained at the level of ten years ago. If a company’s dividend stays the same while earnings fall, it’s usually a sign that the company is paying out a larger percentage of its profits. This could become unsustainable if revenues fall far enough.

Summing it up

Is Sampo Oyj worth buying for its dividend? We’re not too excited to see Sampo Oyj’s earnings decline, with the company paying out more than half of its profits as dividends to shareholders. This isn’t an overtly attractive combination of features, and we’re just not that interested in this company’s dividend.

That said, if you’re still considering Sampo Oyj as an investment, you’ll find it useful to know what risks this stock faces. Example: We’ve seen it 1 warning sign for Sampo Oyj you have to take it into account.

In general, we don’t recommend just buying the first dividend stock you see. Here is a curated list of interesting stocks that are strong dividend payers.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.