Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Solar A/S (CPH:SOLAR B) 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. Meaning, you will need to purchase Solar’s shares before the 12th of May to receive the dividend, which will be paid on the 17th of May.
The company’s upcoming dividend is kr.45.00 a share, following on from the last 12 months, when the company distributed a total of kr.45.00 per share to shareholders. Based on the last year’s worth of payments, Solar stock has a trailing yield of around 5.7% on the current share price of DKK791. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Solar
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Solar paid out more than half (62%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Solar generated enough free cash flow to afford its dividend. It paid out 79% of its free cash flow as dividends, which is within usual limits but will limit the company’s ability to lift the dividend if there’s no growth.
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.
CPSE:SOLAR B Historic Dividend May 8th 2022
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see Solar’s earnings have been skyrocketing, up 31% per annum for the past five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Solar has lifted its dividend by approximately 24% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy Solar for the upcoming dividend? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That’s why we’re glad to see Solar’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 62% and 79% respectively. All things considered, we are not particularly enthused about Solar from a dividend perspective.
In light of that, while Solar has an appealing dividend, it’s worth knowing the risks involved with this stock. For example, Solar has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.