Stock Analysis

Three Days Left To Buy Smurfit Kappa Group Plc (ISE:SK3) Before The Ex-Dividend Date

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ISE:SK3
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Smurfit Kappa Group Plc (ISE:SK3) is about to trade ex-dividend in the next three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Smurfit Kappa Group's shares on or after the 29th of September will not receive the dividend, which will be paid on the 28th of October.

The company's next dividend payment will be €0.32 per share, and in the last 12 months, the company paid a total of €1.28 per share. Based on the last year's worth of payments, Smurfit Kappa Group stock has a trailing yield of around 4.3% on the current share price of €29.67. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Smurfit Kappa Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Smurfit Kappa Group paid out a comfortable 35% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Smurfit Kappa Group paid out more free cash flow than it generated - 129%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Smurfit Kappa Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Smurfit Kappa Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

historic-dividend
ISE:SK3 Historic Dividend September 25th 2022

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 Smurfit Kappa Group's earnings per share have risen 14% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Smurfit Kappa Group has delivered 24% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

From a dividend perspective, should investors buy or avoid Smurfit Kappa Group? We like that Smurfit Kappa Group has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall, it's hard to get excited about Smurfit Kappa Group from a dividend perspective.

While it's tempting to invest in Smurfit Kappa Group for the dividends alone, you should always be mindful of the risks involved. For example, Smurfit Kappa Group has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Smurfit Kappa Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About ISE:SK3

Smurfit Kappa Group

Smurfit Kappa Group plc, together with its subsidiaries, manufactures, distributes, and sells paper-based packaging products.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth0
Past Performance5
Financial Health5
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Undervalued with solid track record.