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Just 4 Days Before Smartgroup Corporation Ltd (ASX:SIQ) Will Be Trading Ex-Dividend

Simply Wall St

It looks like Smartgroup Corporation Ltd (ASX:SIQ) is about to go ex-dividend in the next 4 days. You can purchase shares before the 28th of February in order to receive the dividend, which the company will pay on the 16th of March.

Smartgroup's upcoming dividend is AU$0.21 a share, following on from the last 12 months, when the company distributed a total of AU$0.43 per share to shareholders. Based on the last year's worth of payments, Smartgroup stock has a trailing yield of around 5.9% on the current share price of A$7.34. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Smartgroup has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Smartgroup

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. Last year Smartgroup paid out 90% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Dividends consumed 57% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Smartgroup's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

ASX:SIQ Historical Dividend Yield, February 23rd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Smartgroup's earnings have been skyrocketing, up 29% per annum 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. Since the start of our data, five years ago, Smartgroup has lifted its dividend by approximately 48% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy Smartgroup for the upcoming dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy Smartgroup today.

Wondering what the future holds for Smartgroup? See what the five 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.

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.