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Be Sure To Check Out Solution Dynamics Limited (NZSE:SDL) Before It Goes Ex-Dividend

Simply Wall St
·3 mins read

Solution Dynamics Limited (NZSE:SDL) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 8th of October will not receive the dividend, which will be paid on the 21st of October.

Solution Dynamics's upcoming dividend is NZ$0.06 a share, following on from the last 12 months, when the company distributed a total of NZ$0.12 per share to shareholders. Based on the last year's worth of payments, Solution Dynamics has a trailing yield of 4.6% on the current stock price of NZ$2.6. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Solution Dynamics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Solution Dynamics is paying out an acceptable 71% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its 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 how much of its profit Solution Dynamics paid out over the last 12 months.

historic-dividend
historic-dividend

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Solution Dynamics's earnings per share have risen 17% per annum over the last five years. Solution Dynamics has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last five years, Solution Dynamics has lifted its dividend by approximately 52% 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.

Final Takeaway

Should investors buy Solution Dynamics for the upcoming dividend? We like Solution Dynamics's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about Solution Dynamics, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for Solution Dynamics and you should be aware of these before buying any shares.

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.