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Spectris plc (LON:SXS) Looks Interesting, And It's About To Pay A Dividend

Simply Wall St
·3 mins read

Spectris plc (LON:SXS) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 15th of October, you won't be eligible to receive this dividend, when it is paid on the 6th of November.

Spectris's upcoming dividend is UK£0.22 a share, following on from the last 12 months, when the company distributed a total of UK£0.65 per share to shareholders. Based on the last year's worth of payments, Spectris has a trailing yield of 2.5% on the current stock price of £26.01. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Spectris

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. That's why it's good to see Spectris paying out a modest 35% of its earnings. A useful secondary check can be to evaluate whether Spectris generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.

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?

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. Fortunately for readers, Spectris's earnings per share have been growing at 10% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. 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. Spectris has delivered 10% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Spectris worth buying for its dividend? Spectris 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. Spectris looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Spectris for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Spectris 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 editorial-team@simplywallst.com.