Readers hoping to buy Schweitzer-Mauduit International, Inc. (NYSE:SWM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 3rd of March, you won't be eligible to receive this dividend, when it is paid on the 20th of March.
Schweitzer-Mauduit International's next dividend payment will be US$0.44 per share. Last year, in total, the company distributed US$1.76 to shareholders. Based on the last year's worth of payments, Schweitzer-Mauduit International has a trailing yield of 5.0% on the current stock price of $35.49. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Schweitzer-Mauduit International paid out 63% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 43% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Schweitzer-Mauduit International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Schweitzer-Mauduit International's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all 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. In the last ten years, Schweitzer-Mauduit International has lifted its dividend by approximately 19% a year on average.
The Bottom Line
Should investors buy Schweitzer-Mauduit International for the upcoming dividend? We're not enthused by the flat earnings per share, although at least the company's payout ratio is within reasonable bounds. Additionally, it paid out a lower percentage of its free cash flow, so at least it generated more cash than it spent on dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Schweitzer-Mauduit International's dividend merits.
Ever wonder what the future holds for Schweitzer-Mauduit International? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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