JOST Werke (ETR:JST) Could Be A Buy For Its Upcoming Dividend

It looks like JOST Werke SE (ETR:JST) is about to go ex-dividend in the next 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 JOST Werke's shares before the 9th of May in order to be eligible for the dividend, which will be paid on the 13th of May.

The company's upcoming dividend is €1.50 a share, following on from the last 12 months, when the company distributed a total of €1.50 per share to shareholders. Looking at the last 12 months of distributions, JOST Werke has a trailing yield of approximately 2.9% on its current stock price of €51.60. If you buy this business for its dividend, you should have an idea of whether JOST Werke's dividend is reliable and sustainable. So we need to investigate whether JOST Werke can afford its dividend, and if the dividend could grow.

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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. Fortunately JOST Werke's payout ratio is modest, at just 42% of profit. A useful secondary check can be to evaluate whether JOST Werke generated enough free cash flow to afford its dividend. The good news is it paid out just 19% of its free cash flow in the last year.

It's positive to see that JOST Werke's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for JOST Werke

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see JOST Werke earnings per share are up 9.4% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. JOST Werke has delivered an average of 17% per year annual increase in its dividend, based on the past seven years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy JOST Werke for the upcoming dividend? Earnings per share growth has been growing somewhat, and JOST Werke is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but JOST Werke is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for JOST Werke that we recommend you consider before investing in the business.

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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.