Is It Worth Considering Superior Group of Companies, Inc. (NASDAQ:SGC) For Its Upcoming Dividend?

By
Simply Wall St
Published
May 21, 2021
NasdaqGM:SGC
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Superior Group of Companies, Inc. (NASDAQ:SGC) is about to go ex-dividend in just four days. The ex-dividend date occurs one day 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 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. Meaning, you will need to purchase Superior Group of Companies' shares before the 27th of May to receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be US$0.12 per share. Last year, in total, the company distributed US$0.48 to shareholders. Calculating the last year's worth of payments shows that Superior Group of Companies has a trailing yield of 1.9% on the current share price of $25.79. 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 Superior Group of Companies

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Superior Group of Companies has a low and conservative payout ratio of just 9.4% of its income after tax. A useful secondary check can be to evaluate whether Superior Group of Companies generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 202% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Superior Group of Companies is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Superior Group of Companies's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Superior Group of Companies's ability to maintain its dividend.

Click here to see how much of its profit Superior Group of Companies paid out over the last 12 months.

historic-dividend
NasdaqGM:SGC Historic Dividend May 22nd 2021

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Superior Group of Companies has grown its earnings rapidly, up 27% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Superior Group of Companies has increased its dividend at approximately 5.9% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Should investors buy Superior Group of Companies for the upcoming dividend? We like that Superior Group of Companies has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about Superior Group of Companies from a dividend perspective.

On that note, you'll want to research what risks Superior Group of Companies is facing. To that end, you should learn about the 2 warning signs we've spotted with Superior Group of Companies (including 1 which makes us a bit uncomfortable).

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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