Deutsche EuroShop AG (ETR:DEQ) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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 Deutsche EuroShop's shares before the 30th of August to receive the dividend, which will be paid on the 3rd of September.

The company's next dividend payment will be €2.60 per share, on the back of last year when the company paid a total of €0.80 to shareholders. Calculating the last year's worth of payments shows that Deutsche EuroShop has a trailing yield of 3.1% on the current share price of €26.10. If you buy this business for its dividend, you should have an idea of whether Deutsche EuroShop's dividend is reliable and sustainable. As a result, readers should always check whether Deutsche EuroShop has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Deutsche EuroShop

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Deutsche EuroShop reported a loss last year, so it's not great to see that it has continued paying a dividend. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Deutsche EuroShop didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Deutsche EuroShop paid out more free cash flow than it generated - 195%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. Deutsche EuroShop was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Deutsche EuroShop has seen its dividend decline 4.4% per annum on average over the past 10 years, which is not great to see.

Remember, you can always get a snapshot of Deutsche EuroShop's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Deutsche EuroShop? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Deutsche EuroShop and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 2 warning signs with Deutsche EuroShop (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.