Why You Might Be Interested In J. Smart & Co. (Contractors) PLC (LON:SMJ) For Its Upcoming Dividend

J. Smart & Co. (Contractors) PLC (LON:SMJ) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 14th of January will not receive this dividend, which will be paid on the 8th of February.

J. Smart (Contractors)'s next dividend payment will be UK£0.023 per share, and in the last 12 months, the company paid a total of UK£0.032 per share. Calculating the last year's worth of payments shows that J. Smart (Contractors) has a trailing yield of 2.8% on the current share price of £1.17. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for J. Smart (Contractors)

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. Fortunately J. Smart (Contractors)'s payout ratio is modest, at just 38% of profit. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 18% of its cash flow last year.

It's positive to see that J. Smart (Contractors)'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.

Click here to see how much of its profit J. Smart (Contractors) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see J. Smart (Contractors) earnings per share are up 5.6% 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. In the last 10 years, J. Smart (Contractors) has lifted its dividend by approximately 1.3% a year on average.

Final Takeaway

Should investors buy J. Smart (Contractors) for the upcoming dividend? Earnings per share have been growing moderately, and J. Smart (Contractors) is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but J. Smart (Contractors) is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about J. Smart (Contractors), and we would prioritise taking a closer look at it.

In light of that, while J. Smart (Contractors) has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for J. Smart (Contractors) and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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