Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sylvamo Corporation (NYSE:SLVM) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Sylvamo's shares before the 5th of April in order to be eligible for the dividend, which will be paid on the 27th of April.
The company's next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$1.00 to shareholders. Looking at the last 12 months of distributions, Sylvamo has a trailing yield of approximately 2.2% on its current stock price of $45.59. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sylvamo can afford its dividend, and if the dividend could grow.
View our latest analysis for Sylvamo
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sylvamo has a low and conservative payout ratio of just 2.9% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 3.5% of its cash flow last year.
It's positive to see that Sylvamo'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?
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. That's why it's not ideal to see Sylvamo's earnings per share have been shrinking at 2.5% a year over the previous three years.
Given that Sylvamo has only been paying a dividend for a year, there's not much of a past history to draw insight from.