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 4 days. You will need to purchase shares before the 26th of March to receive the dividend, which will be paid on the 7th of May.
Devro's next dividend payment will be UK£0.063 per share. Last year, in total, the company distributed UK£0.09 to shareholders. Based on the last year's worth of payments, Devro stock has a trailing yield of around 6.8% on the current share price of £1.314. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Devro has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Devro
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. Devro paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 48% of its free cash flow in the past year.
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 earnings fall far enough, the company could be forced to cut its dividend. Devro reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Devro has delivered 6.1% dividend growth per year on average over the past ten years.
Remember, you can always get a snapshot of Devro's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Should investors buy Devro for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Although, if you're still interested in Devro and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for Devro (1 is concerning!) that you ought to be aware of before buying the 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.