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Readers hoping to buy Superior Plus Corp. (TSE:SPB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Superior Plus investors that purchase the stock on or after the 28th of September will not receive the dividend, which will be paid on the 15th of October.
The company's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.72 per share to shareholders. Looking at the last 12 months of distributions, Superior Plus has a trailing yield of approximately 5.0% on its current stock price of CA$14.31. If you buy this business for its dividend, you should have an idea of whether Superior Plus's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Superior Plus distributed an unsustainably high 156% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Superior Plus generated enough free cash flow to afford its dividend. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while Superior Plus's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Superior Plus's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Superior Plus's dividend payments per share have declined at 7.8% per year on average over the past 10 years, which is uninspiring.
Has Superior Plus got what it takes to maintain its dividend payments? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Additionally, Superior Plus is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Bottom line: Superior Plus has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you're still interested in Superior Plus and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 3 warning signs for Superior Plus (of which 1 is a bit unpleasant!) you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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