Yahoo Finance Why It Might Not Make Sense To Buy Spirax-Sarco Engineering plc (LON:SPX) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Spirax-Sarco Engineering plc (LON:SPX) is about to trade 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Spirax-Sarco Engineering's shares on or after the 25th of April will not receive the dividend, which will be paid on the 24th of May.
The company's upcoming dividend is UK£1.14 a share, following on from the last 12 months, when the company distributed a total of UK£1.60 per share to shareholders. Last year's total dividend payments show that Spirax-Sarco Engineering has a trailing yield of 1.7% on the current share price of UK£92.15. If you buy this business for its dividend, you should have an idea of whether Spirax-Sarco Engineering's dividend is reliable and sustainable. As a result, readers should always check whether Spirax-Sarco Engineering has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Spirax-Sarco Engineering
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Spirax-Sarco Engineering paid out 64% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.
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.
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. So we're not too excited that Spirax-Sarco Engineering's earnings are down 3.8% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Spirax-Sarco Engineering has lifted its dividend by approximately 11% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
From a dividend perspective, should investors buy or avoid Spirax-Sarco Engineering? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. 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 Spirax-Sarco Engineering and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 1 warning sign for Spirax-Sarco Engineering that you should be aware of before investing in their shares.
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.
