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WashTec AG (ETR:WSU) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase WashTec's shares on or after the 16th of May will not receive the dividend, which will be paid on the 18th of May.
The company's next dividend payment will be €2.20 per share. Last year, in total, the company distributed €2.20 to shareholders. Looking at the last 12 months of distributions, WashTec has a trailing yield of approximately 5.6% on its current stock price of €39.1. 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 WashTec can afford its dividend, and if the dividend could grow.
See our latest analysis for WashTec
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, WashTec paid out 107% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether WashTec generated enough free cash flow to afford its dividend. Over the past year it paid out 187% 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.
Cash is slightly more important than profit from a dividend perspective, but given WashTec's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
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. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see WashTec's earnings per share have dropped 5.7% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.