Here's What We Like About Solution Dynamics' (NZSE:SDL) Upcoming Dividend

Solution Dynamics Limited (NZSE:SDL) stock is about to trade ex-dividend in 4 days. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Solution Dynamics' shares before the 21st of March in order to be eligible for the dividend, which will be paid on the 10th of April.

The company's next dividend payment will be NZ$0.07 per share, and in the last 12 months, the company paid a total of NZ$0.11 per share. Looking at the last 12 months of distributions, Solution Dynamics has a trailing yield of approximately 7.7% on its current stock price of NZ$1.50. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Solution Dynamics

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Solution Dynamics paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Solution Dynamics generated enough free cash flow to afford its dividend. Fortunately, it paid out only 47% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Solution Dynamics's earnings have been skyrocketing, up 20% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last nine years, Solution Dynamics has lifted its dividend by approximately 25% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Has Solution Dynamics got what it takes to maintain its dividend payments? Solution Dynamics has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Solution Dynamics for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Solution Dynamics that we recommend you consider before investing in the business.

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.