It Might Not Be A Great Idea To Buy Sigdo Koppers S.A. (SNSE:SK) For Its Next Dividend

It looks like Sigdo Koppers S.A. (SNSE:SK) is about to go ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Sigdo Koppers' shares before the 6th of June to receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be US$0.0059357 per share, on the back of last year when the company paid a total of US$0.051 to shareholders. Calculating the last year's worth of payments shows that Sigdo Koppers has a trailing yield of 3.9% on the current share price of CL$1248.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Sigdo Koppers paid out 103% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Sigdo Koppers generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 25% of its cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Sigdo Koppers fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

See our latest analysis for Sigdo Koppers

Click here to see how much of its profit Sigdo Koppers paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Sigdo Koppers's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sigdo Koppers has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Has Sigdo Koppers got what it takes to maintain its dividend payments? Along with flat earnings per share, Sigdo Koppers paid out an uncomfortably high percentage of its earnings. It paid out a lower percentage of its free cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

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. For example, we've found 3 warning signs for Sigdo Koppers that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.