Seven Group Holdings Limited (ASX:SVW) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 17th of September will not receive this dividend, which will be paid on the 13th of October.
Seven Group Holdings's next dividend payment will be AU$0.21 per share. Last year, in total, the company distributed AU$0.42 to shareholders. Calculating the last year's worth of payments shows that Seven Group Holdings has a trailing yield of 2.4% on the current share price of A$17.27. If you buy this business for its dividend, you should have an idea of whether Seven Group Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Seven Group Holdings distributed an unsustainably high 123% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Seven Group Holdings generated enough free cash flow 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 disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Seven Group Holdings fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
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. It's encouraging to see Seven Group Holdings has grown its earnings rapidly, up 48% a year 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. In the past 10 years, Seven Group Holdings has increased its dividend at approximately 8.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Seven Group Holdings an attractive dividend stock, or better left on the shelf? Seven Group Holdings has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. All things considered, we are not particularly enthused about Seven Group Holdings from a dividend perspective.
So if you want to do more digging on Seven Group Holdings, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 3 warning signs with Seven Group Holdings and understanding them should be part of your investment process.
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 firstname.lastname@example.org.