Three Days Left Until South Ocean Holdings Limited (JSE:SOH) Trades Ex-Dividend

It looks like South Ocean Holdings Limited (JSE:SOH) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase South Ocean Holdings' shares before the 19th of April to receive the dividend, which will be paid on the 24th of April.

The company's upcoming dividend is R0.06 a share, following on from the last 12 months, when the company distributed a total of R0.06 per share to shareholders. Based on the last year's worth of payments, South Ocean Holdings stock has a trailing yield of around 4.8% on the current share price of ZAR1.25. If you buy this business for its dividend, you should have an idea of whether South Ocean Holdings's dividend is reliable and sustainable. So we need to investigate whether South Ocean Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for South Ocean Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. South Ocean Holdings paid out a comfortable 27% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 97% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While South Ocean Holdings'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 South Ocean Holdings's ability to maintain its dividend.

Click here to see how much of its profit South Ocean Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 South Ocean Holdings's earnings have been skyrocketing, up 40% per annum 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. South Ocean Holdings has delivered 41% dividend growth per year on average over the past two years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is South Ocean Holdings an attractive dividend stock, or better left on the shelf? We like that South Ocean Holdings 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. To summarise, South Ocean Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while South Ocean Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 4 warning signs with South Ocean Holdings and understanding them should be part of your investment process.

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.