Read this before considering Schaffer Corporation Limited (ASX:SFC) for its upcoming AU$0.45 dividend
Looks like Schaffer Company Limited (ASX:SFC) is set to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So you can buy Schaffer shares before March 3 in order to receive the dividend, which the company will pay on March 11.
The company’s next dividend payment will be AU$0.45 per share, following last year when the company paid a total of AU$0.90 to shareholders. Looking at the last 12 months of distributions, Schaffer has a yield of around 4.3% on its current share price of AU$20.95. If you’re buying this company for its dividend, you should have some idea of the reliability and sustainability of Schaffer’s dividend. That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.
See our latest analysis for Schaffer
Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Schaffer paid out more than half (55%) of its profits last year, which is a regular payout ratio for most companies. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Dividends consumed 74% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see how much of his profit Schaffer has paid out over the past 12 months.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. That’s why it’s heartening to see Schaffer’s revenue skyrocketing, up 32% annually over the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends and reinvesting in growth. With a reasonable payout ratio, reinvested earnings and some earnings growth, Schaffer could have good prospects for future dividend increases.
Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, Schaffer has increased its dividend by about 16% per year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing at the same time.
Is Schaffer worth buying for its dividend? Higher earnings per share generally result in higher dividends from long-term dividend-paying stocks. That’s why we’re happy to see Schaffer’s earnings per share increase, even though, as we’ve seen, the company pays out more than half of its earnings and cash – 55% and 74% respectively. Overall, we’re not extremely bearish on the stock, but there are probably better dividend investments out there.
In light of this, although Schaffer has an attractive dividend, it is worth knowing the risks associated with this stock. Every business has risks, and we’ve spotted 2 warning signs for Schaffer you should know.
If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.