U.S. Markets closed

Is It Smart To Buy Renew Holdings plc (LON:RNWH) Before It Goes Ex-Dividend?

Simply Wall St

Renew Holdings plc (LON:RNWH) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 30th of January, you won't be eligible to receive this dividend, when it is paid on the 6th of March.

Renew Holdings's upcoming dividend is UK£0.077 a share, following on from the last 12 months, when the company distributed a total of UK£0.12 per share to shareholders. Last year's total dividend payments show that Renew Holdings has a trailing yield of 2.2% on the current share price of £5.2. If you buy this business for its dividend, you should have an idea of whether Renew Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Renew Holdings

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. That's why it's good to see Renew Holdings paying out a modest 39% of its earnings. A useful secondary check can be to evaluate whether Renew Holdings generated enough free cash flow to afford its dividend. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Renew Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

AIM:RNWH Historical Dividend Yield, January 26th 2020

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Renew Holdings's earnings per share have been growing at 12% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Renew Holdings has increased its dividend at approximately 14% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Renew Holdings an attractive dividend stock, or better left on the shelf? Renew Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

Ever wonder what the future holds for Renew Holdings? 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.

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.