We Wouldn't Be Too Quick To Buy SGS SA (VTX:SGSN) Before It Goes Ex-Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that SGS SA (VTX:SGSN) is about to go ex-dividend in just 4 days. You can purchase shares before the 26th of March in order to receive the dividend, which the company will pay on the 30th of March.
SGS's next dividend payment will be CHF80.00 per share, on the back of last year when the company paid a total of CHF80.00 to shareholders. Based on the last year's worth of payments, SGS stock has a trailing yield of around 3.6% on the current share price of CHF2233. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for SGS
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. SGS paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether SGS generated enough free cash flow to afford its dividend. Dividends consumed 69% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's good to see that while SGS's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that SGS's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, SGS has lifted its dividend by approximately 2.9% a year on average.
Final Takeaway
Is SGS worth buying for its dividend? Earnings per share have barely moved in recent times, and the company is paying out an uncomfortably high percentage of its income. Fortunately its cash generation was somewhat stronger. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in SGS and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 4 warning signs for SGS you should know about.
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.
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.
