Yahoo Finance SAF-Holland (ETR:SFQ) Could Be A Buy For Its Upcoming Dividend
SAF-Holland SE (ETR:SFQ) is about to trade ex-dividend in the next three 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. Thus, you can purchase SAF-Holland's shares before the 24th of May in order to receive the dividend, which the company will pay on the 26th of May.
The company's next dividend payment will be €0.60 per share. Last year, in total, the company distributed €0.60 to shareholders. Last year's total dividend payments show that SAF-Holland has a trailing yield of 4.4% on the current share price of €13.71. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether SAF-Holland can afford its dividend, and if the dividend could grow.
Check out our latest analysis for SAF-Holland
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see SAF-Holland paying out a modest 45% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 14% of its free cash flow in the last year.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at SAF-Holland, with earnings per share up 7.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SAF-Holland has delivered an average of 9.3% per year annual increase in its dividend, based on the past nine years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is SAF-Holland an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and SAF-Holland 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and SAF-Holland is halfway there. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in SAF-Holland for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for SAF-Holland you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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