Somfy SA (EPA:SO) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

By
Simply Wall St
Published
June 02, 2021
ENXTPA:SO
Source: Shutterstock

Readers hoping to buy Somfy SA (EPA:SO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Somfy investors that purchase the stock on or after the 8th of June will not receive the dividend, which will be paid on the 10th of June.

The company's next dividend payment will be €1.85 per share, and in the last 12 months, the company paid a total of €1.85 per share. Calculating the last year's worth of payments shows that Somfy has a trailing yield of 1.3% on the current share price of €142.4. If you buy this business for its dividend, you should have an idea of whether Somfy's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Somfy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Somfy paid out a comfortable 30% of its profit last year. 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. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
ENXTPA:SO Historic Dividend June 3rd 2021

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Somfy earnings per share are up 6.2% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Somfy has delivered 5.9% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Somfy an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Somfy 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Somfy is halfway there. There's a lot to like about Somfy, and we would prioritise taking a closer look at it.

Wondering what the future holds for Somfy? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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