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Service Corporation International (NYSE:SCI) stock is about to trade ex-dividend in four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Service Corporation International's shares before the 14th of December in order to be eligible for the dividend, which will be paid on the 31st of December.
The company's upcoming dividend is US$0.23 a share, following on from the last 12 months, when the company distributed a total of US$0.92 per share to shareholders. Looking at the last 12 months of distributions, Service Corporation International has a trailing yield of approximately 1.3% on its current stock price of $68.55. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Service Corporation International has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Service Corporation International's earnings have been skyrocketing, up 33% per annum for the past five years. Service Corporation International looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Service Corporation International has lifted its dividend by approximately 16% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is Service Corporation International an attractive dividend stock, or better left on the shelf? Service Corporation International has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in Service Corporation International for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for Service Corporation International (of which 1 is a bit concerning!) you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.