Four Days Left Until Samuel Heath & Sons plc (LON:HSM) Trades Ex-Dividend

It looks like Samuel Heath & Sons plc (LON:HSM) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Samuel Heath & Sons' shares before the 22nd of February in order to be eligible for the dividend, which will be paid on the 22nd of March.

The company's next dividend payment will be UK£0.045 per share, and in the last 12 months, the company paid a total of UK£0.12 per share. Last year's total dividend payments show that Samuel Heath & Sons has a trailing yield of 3.7% on the current share price of UK£3.25. If you buy this business for its dividend, you should have an idea of whether Samuel Heath & Sons's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Samuel Heath & Sons

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. That's why it's good to see Samuel Heath & Sons paying out a modest 36% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend.

Click here to see how much of its profit Samuel Heath & Sons paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Samuel Heath & Sons's earnings per share have been shrinking at 2.7% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Samuel Heath & Sons's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

The Bottom Line

Should investors buy Samuel Heath & Sons for the upcoming dividend? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though Samuel Heath & Sons is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Samuel Heath & Sons.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Samuel Heath & Sons. To that end, you should learn about the 4 warning signs we've spotted with Samuel Heath & Sons (including 1 which is concerning).

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.

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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.