Read This Before Considering Seco/Warwick S.A. (WSE:SWG) For Its Upcoming zł1.00 Dividend

Seco/Warwick S.A. (WSE:SWG) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Seco/Warwick's shares before the 17th of June in order to be eligible for the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be zł1.00 per share, and in the last 12 months, the company paid a total of zł1.00 per share. Last year's total dividend payments show that Seco/Warwick has a trailing yield of 2.9% on the current share price of zł34.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Seco/Warwick

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. Fortunately Seco/Warwick's payout ratio is modest, at just 31% of profit. A useful secondary check can be to evaluate whether Seco/Warwick generated enough free cash flow to afford its dividend. Seco/Warwick paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see how much of its profit Seco/Warwick paid out over the last 12 months.

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. 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's why it's comforting to see Seco/Warwick's earnings have been skyrocketing, up 24% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Seco/Warwick has delivered 2.9% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Seco/Warwick is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Seco/Warwick? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. All things considered, we are not particularly enthused about Seco/Warwick from a dividend perspective.

In light of that, while Seco/Warwick has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Seco/Warwick that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.