Is It Worth Considering RHI Magnesita N.V. (LON:RHIM) For Its Upcoming Dividend?

It looks like RHI Magnesita N.V. (LON:RHIM) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase RHI Magnesita's shares before the 16th of May in order to be eligible for the dividend, which will be paid on the 13th of June.

The company's next dividend payment will be €1.25 per share. Last year, in total, the company distributed €1.80 to shareholders. Based on the last year's worth of payments, RHI Magnesita has a trailing yield of 4.1% on the current stock price of UK£37.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether RHI Magnesita can afford its dividend, and if the dividend could grow.

See our latest analysis for RHI Magnesita

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. RHI Magnesita paid out 51% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.

It's positive to see that RHI Magnesita'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.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that RHI Magnesita's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. RHI Magnesita has delivered 16% dividend growth per year on average over the past six years.

To Sum It Up

Is RHI Magnesita an attractive dividend stock, or better left on the shelf? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, RHI Magnesita doesn't stand out from a dividend perspective. In summary, while it has some positive characteristics, we're not inclined to race out and buy RHI Magnesita today.

If you want to look further into RHI Magnesita, it's worth knowing the risks this business faces. For example, we've found 2 warning signs for RHI Magnesita that we recommend you consider before investing in the business.

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.

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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.