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Read This Before Considering Skellerup Holdings Limited (NZSE:SKL) For Its Upcoming NZ$0.082 Dividend

Simply Wall St
·4 mins read

Skellerup Holdings Limited (NZSE:SKL) stock is about to trade ex-dividend in 4 days. You will need to purchase shares before the 1st of October to receive the dividend, which will be paid on the 16th of October.

Skellerup Holdings's next dividend payment will be NZ$0.082 per share, on the back of last year when the company paid a total of NZ$0.13 to shareholders. Last year's total dividend payments show that Skellerup Holdings has a trailing yield of 4.4% on the current share price of NZ$2.93. If you buy this business for its dividend, you should have an idea of whether Skellerup Holdings'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 Skellerup Holdings

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. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. 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. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.

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.

historic-dividend
historic-dividend

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Skellerup Holdings, with earnings per share up 5.6% on average over the last five years. Decent historical earnings per share growth suggests Skellerup Holdings has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

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, Skellerup Holdings has lifted its dividend by approximately 13% a year on average. 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 Skellerup Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Skellerup Holdings paid out a bit over half of its earnings and free cash flow last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Skellerup Holdings as a potential investment, you should definitely consider some of the risks involved with Skellerup Holdings. For example - Skellerup Holdings has 2 warning signs we think you should be aware of.

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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.