Dividend Investors: Don't Be Too Quick To Buy Sigdo Koppers S.A. (SNSE:SK) For Its Upcoming Dividend

Sigdo Koppers S.A. (SNSE:SK) stock is about to trade ex-dividend in three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Sigdo Koppers' shares before the 23rd of September in order to be eligible for the dividend, which will be paid on the 26th of September.

The company's upcoming dividend is US$0.003467 a share, following on from the last 12 months, when the company distributed a total of US$0.051 per share to shareholders. Based on the last year's worth of payments, Sigdo Koppers has a trailing yield of 4.5% on the current stock price of CL$1068.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Sigdo Koppers

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. Sigdo Koppers paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

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 how much of its profit Sigdo Koppers paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Sigdo Koppers's earnings are down 4.2% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sigdo Koppers's dividend payments per share have declined at 2.5% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Should investors buy Sigdo Koppers for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Sigdo Koppers as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 3 warning signs for Sigdo Koppers 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.