Should You Buy Sonoco Products Company (NYSE:SON) For Its Upcoming Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sonoco Products Company (NYSE:SON) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Sonoco Products' shares before the 9th of August in order to be eligible for the dividend, which will be paid on the 8th of September.
The company's next dividend payment will be US$0.51 per share. Last year, in total, the company distributed US$2.04 to shareholders. Based on the last year's worth of payments, Sonoco Products stock has a trailing yield of around 3.5% on the current share price of $57.77. If you buy this business for its dividend, you should have an idea of whether Sonoco Products'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.
See our latest analysis for Sonoco Products
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. Sonoco Products paid out a comfortable 40% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (58%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Sonoco Products'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Sonoco Products has grown its earnings rapidly, up 23% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sonoco Products has delivered 5.4% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Sonoco Products is keeping back more of its profits to grow the business.
Final Takeaway
Has Sonoco Products got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Sonoco Products paid out less than half its earnings and a bit over half its free cash flow. Sonoco Products looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Sonoco Products is facing. Our analysis shows 1 warning sign for Sonoco Products and you should be aware of it before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.
