We Wouldn't Be Too Quick To Buy Sea Harvest Group Limited (JSE:SHG) Before It Goes Ex-Dividend

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 Sea Harvest Group Limited (JSE:SHG) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Sea Harvest Group's shares on or after the 4th of April, you won't be eligible to receive the dividend, when it is paid on the 11th of April.

The company's next dividend payment will be R0.38 per share, and in the last 12 months, the company paid a total of R0.38 per share. Based on the last year's worth of payments, Sea Harvest Group stock has a trailing yield of around 3.9% on the current share price of ZAR9.8. If you buy this business for its dividend, you should have an idea of whether Sea Harvest Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Sea Harvest Group

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. Sea Harvest Group paid out a comfortable 34% 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. Sea Harvest Group paid out more free cash flow than it generated - 115%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Sea Harvest Group'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. Cash is king, as they say, and were Sea Harvest Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 not encouraging to see that Sea Harvest Group's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, five years ago, Sea Harvest Group has lifted its dividend by approximately 4.2% a year on average.

The Bottom Line

Has Sea Harvest Group got what it takes to maintain its dividend payments? It's disappointing to see earnings per share have fallen slightly, even though Sea Harvest Group is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Sea Harvest Group. For example, we've found 2 warning signs for Sea Harvest Group (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.

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.