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 Powermatic Data Systems Limited (SGX:BCY) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 8th of August will not receive the dividend, which will be paid on the 23rd of August.
Powermatic Data Systems's next dividend payment will be S$0.08 per share. Last year, in total, the company distributed S$0.08 to shareholders. Calculating the last year's worth of payments shows that Powermatic Data Systems has a trailing yield of 4.4% on the current share price of SGD1.8. If you buy this business for its dividend, you should have an idea of whether Powermatic Data Systems's dividend is reliable and sustainable. So we need to investigate whether Powermatic Data Systems 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. Powermatic Data Systems has a low and conservative payout ratio of just 25% of its income after tax. A useful secondary check can be to evaluate whether Powermatic Data Systems generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.
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 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. It's encouraging to see Powermatic Data Systems has grown its earnings rapidly, up 28% a year for the past five years. Powermatic Data Systems looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
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, 10 years ago, Powermatic Data Systems has lifted its dividend by approximately 4.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Powermatic Data Systems is keeping back more of its profits to grow the business.
The Bottom Line
Is Powermatic Data Systems an attractive dividend stock, or better left on the shelf? We love that Powermatic Data Systems is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
Want to learn more about Powermatic Data Systems's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.