Stock Analysis

Why It Might Not Make Sense To Buy SRG Global Limited (ASX:SRG) For Its Upcoming Dividend

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ASX:SRG
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that SRG Global Limited (ASX:SRG) is about to go ex-dividend in just 4 days. You can purchase shares before the 9th of March in order to receive the dividend, which the company will pay on the 28th of April.

SRG Global's next dividend payment will be AU$0.01 per share, on the back of last year when the company paid a total of AU$0.02 to shareholders. Last year's total dividend payments show that SRG Global has a trailing yield of 4.1% on the current share price of A$0.49. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether SRG Global has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for SRG Global

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. SRG Global reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If SRG Global didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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ASX:SRG Historic Dividend March 4th 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. SRG Global was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SRG Global's dividend payments are effectively flat on where they were two years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

We update our analysis on SRG Global every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy SRG Global for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in SRG Global despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - SRG Global has 2 warning signs we think you should be aware of.

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.

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