Is It Smart To Buy Standard Motor Products, Inc. (NYSE:SMP) Before It Goes Ex-Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Standard Motor Products, Inc. (NYSE:SMP) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Standard Motor Products investors that purchase the stock on or after the 12th of May will not receive the dividend, which will be paid on the 1st of June.
The company's next dividend payment will be US$0.29 per share, and in the last 12 months, the company paid a total of US$1.16 per share. Last year's total dividend payments show that Standard Motor Products has a trailing yield of 3.1% on the current share price of $36.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Standard Motor Products can afford its dividend, and if the dividend could grow.
View our latest analysis for Standard Motor Products
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Standard Motor Products's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether Standard Motor Products generated enough free cash flow to afford its dividend. It paid out more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Standard Motor Products'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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Standard Motor Products, with earnings per share up 9.4% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Standard Motor Products has delivered 12% dividend growth per year on average over the past 10 years. 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.
Final Takeaway
Should investors buy Standard Motor Products for the upcoming dividend? Earnings per share have been growing at a steady rate, and Standard Motor Products paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, it's hard to get excited about Standard Motor Products from a dividend perspective.
On that note, you'll want to research what risks Standard Motor Products is facing. Every company has risks, and we've spotted 3 warning signs for Standard Motor Products you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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