Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Superhouse Limited (NSE:SUPERHOUSE) is about to go ex-dividend in just 4 days. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 30th of October.
Superhouse's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹1.00 per share. Calculating the last year's worth of payments shows that Superhouse has a trailing yield of 1.3% on the current share price of ₹75.5. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Superhouse can afford its dividend, and if the dividend could grow.
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. Superhouse is paying out just 5.5% 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. Luckily it paid out just 3.8% of its free cash flow last year.
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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Superhouse's earnings per share have dropped 12% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Superhouse has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.
Is Superhouse worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Superhouse today.
Want to learn more about Superhouse? Here's a visualisation of its historical rate of revenue and earnings growth.
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.
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