Readers hoping to buy Saputo Inc. (TSE:SAP) 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 29th of June in order to be eligible for this dividend, which will be paid on the 9th of July.
Saputo's next dividend payment will be CA$0.17 per share. Last year, in total, the company distributed CA$0.68 to shareholders. Based on the last year's worth of payments, Saputo stock has a trailing yield of around 2.1% on the current share price of CA$32.74. 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 investigate whether Saputo can afford its dividend, and if the dividend could grow.
See our latest analysis for Saputo
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Saputo paying out a modest 47% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 59% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Saputo's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Saputo also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Saputo has lifted its dividend by approximately 8.9% a year on average.
To Sum It Up
Is Saputo worth buying for its dividend? Earnings per share are down very slightly in recent times, and Saputo paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
So if you want to do more digging on Saputo, you'll find it worthwhile knowing the risks that this stock faces. In terms of investment risks, we've identified 3 warning signs with Saputo and understanding them should be part of your investment process.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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. 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.
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About TSX:SAP
Saputo
Produces, markets, and distributes dairy products in Canada, the United States, Argentina, Australia, and the United Kingdom.
Excellent balance sheet moderate and pays a dividend.
