Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Asseco Poland SA (WSE:ACP) is set to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is an important date to know because any purchase of shares made on or after this date may mean late settlement which does not appear on the record date. As a result, Asseco Poland investors who buy the stock on or after June 9 will not receive the dividend, which will be paid on June 21.

The company’s next dividend payment will be 3.36 zł per share, and over the past 12 months the company has paid a total of 3.36 zł per share. Last year’s total dividend payout shows that Asseco Poland has a yield of 4.4% on the current share price of PLN 76.4. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. We therefore need to consider whether Asseco Poland can afford its dividend and whether the dividend could increase.

See our latest analysis for Asseco Poland

If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Asseco Poland paid out more than half (59%) of its profits last year, which is a regular payout ratio for most companies. A useful secondary check may be to assess whether Asseco Poland has generated sufficient free cash flow to pay its dividend. The good news is that it has only paid out 17% of its free cash flow over the past year.

It is positive to see that Asseco Poland’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests greater safety margin before the dividend is reduced.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

Have earnings and dividends increased?

Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. That’s why it’s a relief to see that Asseco Poland’s earnings per share have increased by 9.5% per year over the past five years. While earnings have grown at a believable pace, the company pays the majority of its profits to shareholders. If management raises the payout ratio further, we’ll take that as a tacit signal that the company’s growth prospects are slowing.

Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, Asseco Poland has increased its dividend by around 4.4% per year on average. We are pleased to see dividends increasing alongside earnings over several years, which may be a sign that the company intends to share the growth with shareholders.

Last takeaway

Is Asseco Poland worth buying for its dividend? While earnings per share growth was modest, Asseco Poland’s dividend payouts are around an average level; without a big change in earnings, we believe the dividend is likely somewhat sustainable. Fortunately, the company paid out a moderately small percentage of its free cash flow. All things considered, we’re not particularly excited about Asseco Poland from a dividend perspective.

On that note, you’ll want to research the risks that Asseco Poland faces. To help you, we found 1 warning sign for Asseco Poland which you should be aware of before investing in their stocks.

A common investment mistake is to buy the first good stock you see. Here you can find a complete list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.