Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Sonoco Products Company (NYSE:SON) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 7th of August to receive the dividend, which will be paid on the 10th of September.
Sonoco Products’s next dividend payment will be US$0.43 per share, on the back of last year when the company paid a total of US$1.72 to shareholders. Calculating the last year’s worth of payments shows that Sonoco Products has a trailing yield of 3.3% on the current share price of $51.74. 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! As a result, readers should always check whether Sonoco Products has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Sonoco Products
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Sonoco Products is paying out an acceptable 64% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Sonoco Products generated enough free cash flow to afford its dividend. It distributed 35% of its free cash flow as dividends, a comfortable payout level 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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it’s a relief to see Sonoco Products earnings per share are up 4.1% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Sonoco Products has lifted its dividend by approximately 4.8% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Is Sonoco Products worth buying for its dividend? While earnings per share growth has been modest, Sonoco Products’s dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We’ve spotted 1 warning sign for Sonoco Products you should be aware of.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting 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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