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Dividend Investors: Don't Be Too Quick To Buy Schroders plc (LON:SDR) For Its Upcoming Dividend
It looks like Schroders plc (LON:SDR) is about to go ex-dividend in the next three days. 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 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 Schroders' shares before the 23rd of March in order to be eligible for the dividend, which will be paid on the 4th of May.
The company's next dividend payment will be UK£0.15 per share, on the back of last year when the company paid a total of UK£0.21 to shareholders. Based on the last year's worth of payments, Schroders has a trailing yield of 4.8% on the current stock price of £4.41. 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! So we need to investigate whether Schroders can afford its dividend, and if the dividend could grow.
View our latest analysis for Schroders
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Schroders paid out 70% of its earnings to investors last year, a normal payout level for most businesses.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Schroders's earnings are down 3.7% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Schroders has increased its dividend at approximately 12% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
From a dividend perspective, should investors buy or avoid Schroders? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Schroders doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Ever wonder what the future holds for Schroders? See what the 14 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
Valuation is complex, but we're helping make it simple.
Find out whether Schroders is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Schroders plc is a publicly owned investment manager.
Excellent balance sheet established dividend payer.