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Readers hoping to buy Stelrad Group PLC (LON:SRAD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Stelrad Group's shares on or after the 12th of October, you won't be eligible to receive the dividend, when it is paid on the 27th of October.
The company's next dividend payment will be UK£0.029 per share, on the back of last year when the company paid a total of UK£0.076 to shareholders. Looking at the last 12 months of distributions, Stelrad Group has a trailing yield of approximately 7.9% on its current stock price of £0.9625. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Stelrad Group has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Stelrad Group
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Stelrad 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?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Stelrad Group's earnings per share have plummeted approximately 69% a year over the previous five years.