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Should Income Investors Look At Schneider Electric S.E. (EPA:SU) Before Its Ex-Dividend?

Simply Wall St

Schneider Electric S.E. (EPA:SU) stock is about to trade ex-dividend in 2 days time. If you purchase the stock on or after the 5th of May, you won't be eligible to receive this dividend, when it is paid on the 7th of May.

Schneider Electric's next dividend payment will be €2.55 per share, and in the last 12 months, the company paid a total of €2.55 per share. Looking at the last 12 months of distributions, Schneider Electric has a trailing yield of approximately 3.1% on its current stock price of €83.46. 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 Schneider Electric can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Schneider Electric

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Schneider Electric paid out 58% of its earnings to investors last year, a normal payout level for most businesses. 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. Fortunately, it paid out only 38% of its free cash flow in the past 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.

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

ENXTPA:SU Historical Dividend Yield May 2nd 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Schneider Electric earnings per share are up 7.2% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Schneider Electric has delivered an average of 9.5% per year annual increase in its dividend, based on the past ten years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Schneider Electric an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Schneider Electric paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, it's hard to get excited about Schneider Electric from a dividend perspective.

Ever wonder what the future holds for Schneider Electric? See what the 18 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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 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.

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. Thank you for reading.