Interested In Scales' (NZSE:SCL) Upcoming NZ$0.0852941 Dividend? You Have Four Days Left

Readers hoping to buy Scales Corporation Limited (NZSE:SCL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Thus, you can purchase Scales' shares before the 6th of January in order to receive the dividend, which the company will pay on the 17th of January.

The company's next dividend payment will be NZ$0.0852941 per share. Last year, in total, the company distributed NZ$0.085 to shareholders. Looking at the last 12 months of distributions, Scales has a trailing yield of approximately 2.1% on its current stock price of NZ$4.06. If you buy this business for its dividend, you should have an idea of whether Scales's dividend is reliable and sustainable. As a result, readers should always check whether Scales has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Scales

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Scales paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Scales generated enough free cash flow to afford its dividend. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Scales'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 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. That explains why we're not overly excited about Scales's flat earnings 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. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Scales has seen its dividend decline 1.6% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Is Scales worth buying for its dividend? Earnings per share have been flat over the 10-year timeframe we consider, and Scales paid out less than half its earnings and more than half its free cashflow over the last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

So while Scales looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Scales that you should be aware of before investing in their shares.

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