Dividend paying stocks like QleanAir Holding AB (publ) (STO:QAIR) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
Remember that the recent share price drop will make QleanAir Holding’s yield look higher, even though recent events might have impacted the company’s prospects. There are a few simple ways to reduce the risks of buying QleanAir Holding for its dividend, and we’ll go through these below.
Click the interactive chart for our full dividend analysis
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although QleanAir Holding pays a dividend, it was loss-making during the past year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
Is QleanAir Holding’s Balance Sheet Risky?
Given QleanAir Holding is paying a dividend but reported a loss over the past year, we need to check its balance sheet for signs of financial distress. A quick check of its financial situation can be done with two ratios: net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and net interest cover. Net debt to EBITDA is a measure of a company’s total debt. Net interest cover measures the ability to meet interest payments. Essentially we check that a) the company does not have too much debt, and b) that it can afford to pay the interest. With net debt of 2.45 times its EBITDA, QleanAir Holding’s debt burden is within a normal range for most listed companies.
Net interest cover can be calculated by dividing earnings before interest and tax (EBIT) by the company’s net interest expense. Interest cover of 2.59 times its interest expense is starting to become a concern for QleanAir Holding, and be aware that lenders may place additional restrictions on the company as well.
We update our data on QleanAir Holding every 24 hours, so you can always get our latest analysis of its financial health, here.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. With a payment history of less than 2 years, we think it’s a bit too soon to think about living on the income from its dividend. Its most recent annual dividend was kr0.25 per share.
Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn’t want to rely on this dividend too much.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it’s also important to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient’s purchasing power. QleanAir Holding’s earnings per share have fallen -135% over the past year. This is a pretty serious concern, and it would be worth investigating whether something fundamental in the business has changed – or broken. We do note though, one year is too short a time to be drawing strong conclusions about a company’s future prospects.
To summarise, shareholders should always check that QleanAir Holding’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, it’s not great to see a dividend being paid despite the company being unprofitable over the last year. Earnings per share are down, and to our mind QleanAir Holding has not been paying a dividend long enough to demonstrate its resilience across economic cycles. With this information in mind, we think QleanAir Holding may not be an ideal dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We’ve spotted 3 warning signs for QleanAir Holding (of which 1 is concerning!) you should know about.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
If you spot an error that warrants correction, please contact the editor at [email protected] This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.