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It looks like freenet AG (ETR:FNTN) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Meaning, you will need to purchase freenet's shares before the 18th of May to receive the dividend, which will be paid on the 22nd of May.
The company's next dividend payment will be €1.68 per share. Last year, in total, the company distributed €1.68 to shareholders. Looking at the last 12 months of distributions, freenet has a trailing yield of approximately 6.4% on its current stock price of €26.34. If you buy this business for its dividend, you should have an idea of whether freenet's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for freenet
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. An unusually high payout ratio of 252% of its profit suggests something is happening other than the usual distribution of profits to shareholders. A useful secondary check can be to evaluate whether freenet generated enough free cash flow to afford its dividend. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while freenet's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. freenet's earnings per share have fallen at approximately 22% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.