U.S. markets closed

It Might Not Be A Great Idea To Buy Schweiter Technologies AG (VTX:SWTQ) For Its Next Dividend

Simply Wall St

Readers hoping to buy Schweiter Technologies AG (VTX:SWTQ) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 15th of April will not receive the dividend, which will be paid on the 17th of April.

Schweiter Technologies's upcoming dividend is CHF40.00 a share, following on from the last 12 months, when the company distributed a total of CHF40.00 per share to shareholders. Based on the last year's worth of payments, Schweiter Technologies stock has a trailing yield of around 4.2% on the current share price of CHF951. If you buy this business for its dividend, you should have an idea of whether Schweiter Technologies's dividend is reliable and sustainable. So we need to investigate whether Schweiter Technologies can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Schweiter Technologies

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. Last year Schweiter Technologies paid out 91% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Schweiter Technologies generated enough free cash flow to afford its dividend. Dividends consumed 74% 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 Schweiter Technologies's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

SWX:SWTQ Historical Dividend Yield April 10th 2020

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Schweiter Technologies earnings per share are up 6.6% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Schweiter Technologies has delivered an average of 16% 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.

To Sum It Up

Should investors buy Schweiter Technologies for the upcoming dividend? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Schweiter Technologies.

So if you're still interested in Schweiter Technologies despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Schweiter Technologies has 2 warning signs we think you should be aware of.

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.