Is It Smart To Buy Superior Plus Corp. (TSE:SPB) Before It Goes Ex-Dividend?

Superior Plus Corp. (TSE:SPB) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 27th of February to receive the dividend, which will be paid on the 13th of March.

Superior Plus's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.72 per share to shareholders. Calculating the last year's worth of payments shows that Superior Plus has a trailing yield of 6.7% on the current share price of CA$10.79. 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! As a result, readers should always check whether Superior Plus has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Superior Plus

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 88% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Superior Plus generated enough free cash flow to afford its dividend. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Superior Plus'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?

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Superior Plus's earnings per share have been growing at 13% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Superior Plus has seen its dividend decline 7.8% per annum on average over the past ten years, which is not great to see. Superior Plus is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Superior Plus got what it takes to maintain its dividend payments? We like Superior Plus's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Superior Plus looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Wondering what the future holds for Superior Plus? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.