Why You Might Be Interested In Supreme Plc (LON:SUP) For Its Upcoming Dividend

Supreme Plc (LON:SUP) is about to trade ex-dividend in the next day or so. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Supreme's shares before the 5th of December in order to receive the dividend, which the company will pay on the 10th of January.

The company's upcoming dividend is UK£0.018 a share, following on from the last 12 months, when the company distributed a total of UK£0.047 per share to shareholders. Based on the last year's worth of payments, Supreme has a trailing yield of 2.7% on the current stock price of UK£1.76. If you buy this business for its dividend, you should have an idea of whether Supreme's dividend is reliable and sustainable. So we need to investigate whether Supreme can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Supreme

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Supreme has a low and conservative payout ratio of just 25% of its income after tax. A useful secondary check can be to evaluate whether Supreme generated enough free cash flow to afford its dividend. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Supreme'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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Supreme has grown its earnings rapidly, up 32% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Supreme looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Supreme has delivered 29% dividend growth per year on average over the past three years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Supreme an attractive dividend stock, or better left on the shelf? It's great that Supreme is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Supreme is facing. To help with this, we've discovered 3 warning signs for Supreme (1 is significant!) that you ought to be aware of before buying the shares.

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.