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Spectris plc (LON:SXS) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Spectris investors that purchase the stock on or after the 18th of May will not receive the dividend, which will be paid on the 30th of June.
The company's next dividend payment will be UK£0.51 per share, on the back of last year when the company paid a total of UK£0.75 to shareholders. Last year's total dividend payments show that Spectris has a trailing yield of 2.0% on the current share price of £38.17. If you buy this business for its dividend, you should have an idea of whether Spectris's dividend is reliable and sustainable. So we need to investigate whether Spectris can afford its dividend, and if the dividend could grow.
View our latest analysis for Spectris
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. Spectris paid out 71% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 105% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
While Spectris's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Spectris to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Spectris's earnings per share have fallen at approximately 11% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.