RHI Magnesita N.V. (LON:RHIM) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 19th of December will not receive the dividend, which will be paid on the 9th of January.
RHI Magnesita's upcoming dividend is UK£0.50 a share, following on from the last 12 months, when the company distributed a total of UK£1.50 per share to shareholders. Based on the last year's worth of payments, RHI Magnesita stock has a trailing yield of around 2.2% on the current share price of £38.38. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. That's why it's good to see RHI Magnesita paying out a modest 47% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 10% 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?
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. That's why it's comforting to see RHI Magnesita's earnings have been skyrocketing, up 23% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. RHI Magnesita has delivered 15% dividend growth per year on average over the past two years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy RHI Magnesita for the upcoming dividend? RHI Magnesita has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past two years, but the conservative payout ratio makes the current dividend look sustainable. RHI Magnesita looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for RHI Magnesita? See what the six 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.
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