Here's Why We're Wary Of Buying Sanok Rubber Company Spólka Akcyjna's (WSE:SNK) For Its Upcoming Dividend

Sanok Rubber Company Spólka Akcyjna (WSE:SNK) stock is about to trade ex-dividend in 3 days. The ex-dividend date generally occurs two days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Sanok Rubber Company Spólka Akcyjna's shares on or after the 9th of September will not receive the dividend, which will be paid on the 24th of September.

The company's next dividend payment will be zł1.50 per share. Last year, in total, the company distributed zł1.50 to shareholders. Looking at the last 12 months of distributions, Sanok Rubber Company Spólka Akcyjna has a trailing yield of approximately 6.0% on its current stock price of zł25.20. If you buy this business for its dividend, you should have an idea of whether Sanok Rubber Company Spólka Akcyjna's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 80% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

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.

View our latest analysis for Sanok Rubber Company Spólka Akcyjna

Click here to see how much of its profit Sanok Rubber Company Spólka Akcyjna paid out over the last 12 months.

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. With that in mind, we're not enthused to see that Sanok Rubber Company Spólka Akcyjna's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past nine years, Sanok Rubber Company Spólka Akcyjna has increased its dividend at approximately 4.6% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Sanok Rubber Company Spólka Akcyjna? While earnings per share are flat, at least Sanok Rubber Company Spólka Akcyjna has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Sanok Rubber Company Spólka Akcyjna despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 1 warning sign for Sanok Rubber Company Spólka Akcyjna that we recommend you consider before investing in the business.

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.