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 3 days. Typically, the ex-dividend date is two business days 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 at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Sigdo Koppers' shares before the 5th of May in order to receive the dividend, which the company will pay on the 8th of May.

The company's next dividend payment will be US$0.023863 per share, on the back of last year when the company paid a total of US$0.051 to shareholders. Based on the last year's worth of payments, Sigdo Koppers has a trailing yield of 4.4% on the current stock price of CL$1108.60. 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sigdo Koppers paid out 103% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Luckily it paid out just 25% of its free 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. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Sigdo Koppers's earnings are effectively flat 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.

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.

To Sum It Up

Has Sigdo Koppers got what it takes to maintain its dividend payments? Earnings per share have been effectively flat, which is a bit of a concern given the company is paying out 103% of its profit as dividends, which we feel is uncomfortably high. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Sigdo Koppers.

With that in mind though, if the poor dividend characteristics of Sigdo Koppers don't faze you, it's worth being mindful of the risks involved with this business. 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.