It looks like Sulzer AG( VTX:SUN ) is about to go ex-dividend in the next 4 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Sulzer's shares before the 17th of April in order to be eligible for the dividend, which will be paid on the 21st of April.
The company's next dividend payment will be CHF04.75 per share, and in the last 12 months, the company paid a total of CHF4.75 per share. Based on the last year's worth of payments, Sulzer has a trailing yield of 2.8% on the current stock price of CHF0170.30. If you buy this business for its dividend, you should have an idea of whether Sulzer's dividend is reliable and sustainable. As a result, readers should always check whether Sulzer has been able to grow its dividends, or if the dividend might be cut.
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. Sulzer paid out 55% of its earnings to investors last year, a normal payout level for most businesses. 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. Sulzer paid out more free cash flow than it generated - 126%, 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.
Sulzer paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Sulzer to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Sulzer
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Sulzer's earnings have been skyrocketing, up 34% 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.
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, 10 years ago, Sulzer has lifted its dividend by approximately 3.1% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Sulzer is keeping back more of its profits to grow the business.
The Bottom Line
Should investors buy Sulzer for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Sulzer paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's hard to get excited about Sulzer from a dividend perspective.
Wondering what the future holds for Sulzer? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
