Readers hoping to buy Shaver Shop Group Limited (ASX:SSG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 10th of March in order to be eligible for this dividend, which will be paid on the 25th of March.
Shaver Shop Group's next dividend payment will be AU$0.032 per share. Last year, in total, the company distributed AU$0.064 to shareholders. Last year's total dividend payments show that Shaver Shop Group has a trailing yield of 5.6% on the current share price of A$1.135. If you buy this business for its dividend, you should have an idea of whether Shaver Shop Group's dividend is reliable and sustainable. As a result, readers should always check whether Shaver Shop Group has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shaver Shop Group paid out a comfortable 42% of its profit last year. A useful secondary check can be to evaluate whether Shaver Shop Group generated enough free cash flow to afford its dividend. The good news is it paid out just 12% of its free cash flow in the last year.
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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Shaver Shop Group, with earnings per share up 7.1% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, Shaver Shop Group has increased its dividend at approximately 19% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
From a dividend perspective, should investors buy or avoid Shaver Shop Group? Earnings per share growth has been growing somewhat, and Shaver Shop Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Shaver Shop Group is being conservative with its dividend payouts and could still perform reasonably over the long run. Shaver Shop Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Shaver Shop Group is facing. For example - Shaver Shop Group has 1 warning sign 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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