Smiths News plc (LON:SNWS) Goes Ex-Dividend Soon

By
Simply Wall St
Published
January 09, 2022
LSE:SNWS
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Smiths News plc (LON:SNWS) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Smiths News investors that purchase the stock on or after the 13th of January will not receive the dividend, which will be paid on the 10th of February.

The upcoming dividend for Smiths News is UK£0.011 per share, increased from last year's total dividends per share of UK£0.01. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Smiths News

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. Smiths News has a low and conservative payout ratio of just 14% of its income after tax. 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. It paid out 3.1% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Smiths News'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.

historic-dividend
LSE:SNWS Historic Dividend January 9th 2022

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Smiths News's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Smiths News's dividend payments per share have declined at 12% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Has Smiths News got what it takes to maintain its dividend payments? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Smiths News today.

While it's tempting to invest in Smiths News for the dividends alone, you should always be mindful of the risks involved. For example, we've found 4 warning signs for Smiths News (1 is concerning!) that deserve your attention before investing in 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.

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