QSC AG (ETR:QSC) stock is about to trade ex-dividend in 2 days time. If you purchase the stock on or after the 21st of May, you won't be eligible to receive this dividend, when it is paid on the 26th of May.
QSC's upcoming dividend is €0.03 a share, following on from the last 12 months, when the company distributed a total of €0.03 per share to shareholders. Last year's total dividend payments show that QSC has a trailing yield of 2.3% on the current share price of €1.298. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. QSC is paying out just 6.0% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see QSC has grown its earnings rapidly, up 77% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. QSC's dividend payments per share have declined at 12% per year on average over the past eight years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
To Sum It Up
Should investors buy QSC for the upcoming dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy QSC today.
While it's tempting to invest in QSC for the dividends alone, you should always be mindful of the risks involved. For example, QSC has 4 warning signs (and 2 which shouldn't be ignored) we think 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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