In This Article:
It looks like Chemring Group PLC (LON:CHG) is about to go ex-dividend in the next three days. You can purchase shares before the 1st of April in order to receive the dividend, which the company will pay on the 23rd of April.
Chemring Group's upcoming dividend is UK£0.026 a share, following on from the last 12 months, when the company distributed a total of UK£0.039 per share to shareholders. Looking at the last 12 months of distributions, Chemring Group has a trailing yield of approximately 1.5% on its current stock price of £2.625. If you buy this business for its dividend, you should have an idea of whether Chemring Group's dividend is reliable and sustainable. As a result, readers should always check whether Chemring Group has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Chemring Group
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. Fortunately Chemring Group's payout ratio is modest, at just 32% of profit. 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. Fortunately, it paid out only 30% of its free cash flow in the past year.
It's positive to see that Chemring Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Chemring Group has grown its earnings rapidly, up 31% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Chemring Group has seen its dividend decline 10% per annum on average over the past 10 years, which is not great to see. Chemring Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.