Why It Might Not Make Sense To Buy Superior Plus Corp. (TSE:SPB) For Its Upcoming Dividend

It looks like Superior Plus Corp. (TSE:SPB) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Superior Plus' shares on or after the 28th of September, you won't be eligible to receive the dividend, when it is paid on the 16th of October.

The company's upcoming dividend is CA$0.18 a share, following on from the last 12 months, when the company distributed a total of CA$0.72 per share to shareholders. Looking at the last 12 months of distributions, Superior Plus has a trailing yield of approximately 6.7% on its current stock price of CA$10.74. If you buy this business for its dividend, you should have an idea of whether Superior Plus's dividend is reliable and sustainable. 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

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Superior Plus 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 42% of the free cash flow it generated, which is a comfortable payout ratio.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Superior Plus reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Superior Plus has delivered an average of 1.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on Superior Plus's balance sheet health here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Superior Plus? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free 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.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Superior Plus. We've identified 3 warning signs with Superior Plus (at least 1 which is potentially serious), and understanding them should be part of your investment process.

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.