Why You Might Be Interested In Savaria Corporation (TSE:SIS) For Its Upcoming Dividend

It looks like Savaria Corporation (TSE:SIS) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Savaria's shares before the 31st of December to receive the dividend, which will be paid on the 10th of January.

The company's next dividend payment will be CA$0.045 per share. Last year, in total, the company distributed CA$0.54 to shareholders. Calculating the last year's worth of payments shows that Savaria has a trailing yield of 2.7% on the current share price of CA$20.32. If you buy this business for its dividend, you should have an idea of whether Savaria's dividend is reliable and sustainable. As a result, readers should always check whether Savaria has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Savaria

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 80% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. Fortunately, it paid out only 36% of its free cash flow in the past 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.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Savaria earnings per share are up 9.8% per annum over the last five years. Decent historical earnings per share growth suggests Savaria has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Savaria has delivered 21% dividend growth per year on average over the past 10 years. 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.

To Sum It Up

Is Savaria an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest and Savaria paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy Savaria today.

While it's tempting to invest in Savaria for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Savaria you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.