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Readers hoping to buy Schindler Holding AG (VTX:SCHN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Schindler Holding's shares on or after the 30th of March, you won't be eligible to receive the dividend, when it is paid on the 3rd of April.
The company's next dividend payment will be CHF4.00 per share, and in the last 12 months, the company paid a total of CHF4.00 per share. Looking at the last 12 months of distributions, Schindler Holding has a trailing yield of approximately 2.1% on its current stock price of CHF189.6. If you buy this business for its dividend, you should have an idea of whether Schindler Holding's dividend is reliable and sustainable. So we need to investigate whether Schindler Holding can afford its dividend, and if the dividend could grow.
See our latest analysis for Schindler Holding
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. Schindler Holding paid out 71% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (77%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Schindler Holding's 5.9% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Schindler Holding has lifted its dividend by approximately 6.2% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.