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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Spirax-Sarco Engineering plc (LON:SPX) is about to trade ex-dividend in the next three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Spirax-Sarco Engineering's shares on or after the 25th of April will not receive the dividend, which will be paid on the 24th of May.
The company's upcoming dividend is UK£1.14 a share, following on from the last 12 months, when the company distributed a total of UK£1.60 per share to shareholders. Last year's total dividend payments show that Spirax-Sarco Engineering has a trailing yield of 1.7% on the current share price of UK£92.15. If you buy this business for its dividend, you should have an idea of whether Spirax-Sarco Engineering's dividend is reliable and sustainable. As a result, readers should always check whether Spirax-Sarco Engineering has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Spirax-Sarco Engineering
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Spirax-Sarco Engineering paid out 64% of its earnings to investors last year, a normal payout level for most businesses. 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. It paid out more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.
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. So we're not too excited that Spirax-Sarco Engineering's earnings are down 3.8% a year over the past five years.