Is It Smart To Buy Ultra Electronics Holdings plc (LON:ULE) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
April 04, 2021
LSE:ULE

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ultra Electronics Holdings plc (LON:ULE) is about to go ex-dividend in just three days. Investors can purchase shares before the 8th of April in order to be eligible for this dividend, which will be paid on the 14th of May.

Ultra Electronics Holdings's next dividend payment will be UK£0.41 per share, on the back of last year when the company paid a total of UK£0.57 to shareholders. Based on the last year's worth of payments, Ultra Electronics Holdings has a trailing yield of 2.7% on the current stock price of £20.82. If you buy this business for its dividend, you should have an idea of whether Ultra Electronics Holdings's dividend is reliable and sustainable. So we need to investigate whether Ultra Electronics Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for Ultra Electronics Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Ultra Electronics Holdings's payout ratio is modest, at just 48% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 36% of its free cash flow in the past year.

It's positive to see that Ultra Electronics Holdings'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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
LSE:ULE Historic Dividend April 4th 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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Ultra Electronics Holdings has grown its earnings rapidly, up 27% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Ultra Electronics Holdings has lifted its dividend by approximately 6.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Ultra Electronics Holdings got what it takes to maintain its dividend payments? Ultra Electronics Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

Curious what other investors think of Ultra Electronics Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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