Should Income Investors Look At Schroders plc (LON:SDR) Before Its Ex-Dividend?

By
Simply Wall St
Published
March 20, 2021
LSE:SDR
Source: Shutterstock

Schroders plc (LON:SDR) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 25th of March will not receive this dividend, which will be paid on the 6th of May.

Schroders's next dividend payment will be UK£0.79 per share. Last year, in total, the company distributed UK£1.14 to shareholders. Last year's total dividend payments show that Schroders has a trailing yield of 3.3% on the current share price of £34.95. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out 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 65% of its earnings to investors last year, a normal payout level for most businesses.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
LSE:SDR Historic Dividend March 21st 2021

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Schroders's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Schroders has lifted its dividend by approximately 12% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Schroders? Schroders's earnings are effectively flat over recent years, even as the company pays out more than half of its earnings to shareholders as dividends. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.

Wondering what the future holds for Schroders? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.