Is It Smart To Buy Snowman Logistics Limited (NSE:SNOWMAN) Before It Goes Ex-Dividend?

Readers hoping to buy Snowman Logistics Limited (NSE:SNOWMAN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. In other words, investors can purchase Snowman Logistics' shares before the 21st of August in order to be eligible for the dividend, which will be paid on the 7th of September.

The company's next dividend payment will be ₹1.00 per share, on the back of last year when the company paid a total of ₹1.00 to shareholders. Calculating the last year's worth of payments shows that Snowman Logistics has a trailing yield of 1.3% on the current share price of ₹75.14. 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 Snowman Logistics can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Snowman Logistics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see how much of its profit Snowman Logistics paid out over the last 12 months.

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 fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Snowman Logistics, with earnings per share up 2.7% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Snowman Logistics has delivered 8.0% dividend growth per year on average over the past nine years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Has Snowman Logistics got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Snowman Logistics is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Snowman Logistics is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Snowman Logistics has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Snowman Logistics (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.