It looks like Utah Medical Products, Inc. (NASDAQ:UTMD) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Utah Medical Products' shares before the 15th of September to receive the dividend, which will be paid on the 5th of October.
The company's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.14 to shareholders. Last year's total dividend payments show that Utah Medical Products has a trailing yield of 1.3% on the current share price of $90.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Utah Medical Products paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Utah Medical Products generated enough free cash flow to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.
It's positive to see that Utah Medical Products'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.
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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Utah Medical Products earnings per share are up 2.2% per annum over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Utah Medical Products has increased its dividend at approximately 1.9% a year on average.
The Bottom Line
Is Utah Medical Products an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Utah Medical Products is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Utah Medical Products is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.
Want to learn more about Utah Medical Products? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top 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. 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.
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