STERIS plc (NYSE:STE) Looks Interesting, And It's About To Pay A Dividend
STERIS plc (NYSE:STE) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 23rd of February, you won't be eligible to receive this dividend, when it is paid on the 25th of March.
STERIS's next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$1.60 to shareholders. Last year's total dividend payments show that STERIS has a trailing yield of 0.9% on the current share price of $185. If you buy this business for its dividend, you should have an idea of whether STERIS's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for STERIS
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. Fortunately STERIS's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether STERIS generated enough free cash flow to afford its dividend. Fortunately, it paid out only 28% of its free cash flow in the past 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.
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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, STERIS's earnings per share have been growing at 17% 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. STERIS has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy STERIS for the upcoming dividend? STERIS 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. STERIS looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks STERIS is facing. Case in point: We've spotted 1 warning sign for STERIS you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.
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