Yahoo Finance Southern Cross Electrical Engineering Limited (ASX:SXE) Passed Our Checks, And It's About To Pay A AU$0.01 Dividend
Southern Cross Electrical Engineering Limited (ASX:SXE) is about to trade ex-dividend in the next 4 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Southern Cross Electrical Engineering's shares on or after the 29th of March, you won't be eligible to receive the dividend, when it is paid on the 13th of April.
The company's next dividend payment will be AU$0.01 per share, and in the last 12 months, the company paid a total of AU$0.02 per share. Based on the last year's worth of payments, Southern Cross Electrical Engineering stock has a trailing yield of around 3.1% on the current share price of A$0.635. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Southern Cross Electrical Engineering
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range 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.
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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Southern Cross Electrical Engineering's earnings per share have risen 14% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Southern Cross Electrical Engineering's dividend payments per share have declined at 1.2% per year on average over the past 10 years, which is uninspiring.
The Bottom Line
Is Southern Cross Electrical Engineering worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Southern Cross Electrical Engineering is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Southern Cross Electrical Engineering's dividend merits.
While it's tempting to invest in Southern Cross Electrical Engineering for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Southern Cross Electrical Engineering you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
