Be Sure To Check Out Devro plc (LON:DVO) Before It Goes Ex-Dividend

By
Simply Wall St
Published
November 26, 2021
LSE:DVO
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Devro plc (LON:DVO) is about to trade ex-dividend in the next four 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Devro's shares on or after the 2nd of December, you won't be eligible to receive the dividend, when it is paid on the 14th of January.

The company's upcoming dividend is UK£0.028 a share, following on from the last 12 months, when the company distributed a total of UK£0.091 per share to shareholders. Looking at the last 12 months of distributions, Devro has a trailing yield of approximately 4.3% on its current stock price of £2.115. 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! As a result, readers should always check whether Devro has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Devro

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. Devro paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. 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. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

historic-dividend
LSE:DVO Historic Dividend November 27th 2021

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Devro's earnings per share have risen 13% per annum over the last five years. Devro has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

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, Devro has increased its dividend at approximately 2.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Devro is keeping back more of its profits to grow the business.

Final Takeaway

Has Devro got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Devro is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

On that note, you'll want to research what risks Devro is facing. In terms of investment risks, we've identified 1 warning sign with Devro and understanding them should be part of your investment process.

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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