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4 Days To Buy SEEK Limited (ASX:SEK) Before The Ex-Dividend Date

Simply Wall St

SEEK Limited (ASX:SEK) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 11th of September, you won't be eligible to receive this dividend, when it is paid on the 3rd of October.

SEEK's upcoming dividend is AU$0.22 a share, following on from the last 12 months, when the company distributed a total of AU$0.46 per share to shareholders. Based on the last year's worth of payments, SEEK stock has a trailing yield of around 2.2% on the current share price of A$20.89. If you buy this business for its dividend, you should have an idea of whether SEEK's dividend is reliable and sustainable. As a result, readers should always check whether SEEK has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for SEEK

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. It paid out 90% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Dividends consumed 65% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that SEEK'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

ASX:SEK Historical Dividend Yield, September 6th 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that SEEK's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A payout ratio of 90% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SEEK has delivered 12% dividend growth per year on average over the past 10 years.

The Bottom Line

Has SEEK got what it takes to maintain its dividend payments? SEEK has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

Ever wonder what the future holds for SEEK? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Thank you for reading.