Electronic income

Should income investors watch SES SA (BDL:SESGL) ahead of its ex-dividend?

Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that SES SA (BDL:SESGL) is set to go ex-dividend in just three days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. It is important to know the ex-dividend date, because any trade in the stock must have settled by the record date. Thus, you can buy SES shares before April 19 in order to receive the dividend, which the company will pay on April 21.

The company’s next dividend payment will be €0.42 per share, following last year when the company paid out a total of €0.50 to shareholders. Last year’s total dividend payouts show that SES has a rolling yield of 5.6% on the current share price of €8.954. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! We therefore need to consider whether SES can afford its dividend, and whether the dividend could increase.

Check out our latest analysis for SES

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. SES paid out more than half (54%) of its profits last year, which is a regular payout ratio for most companies. A useful secondary check may be to assess whether SES has generated sufficient free cash flow to pay its dividend. It distributed 26% of its free cash flow as dividends, a comfortable level of distribution for most companies.

It is positive to see that the SES dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests a higher margin of safety before the dividend is reduced.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

BDL: SESGL Historic Dividend April 15, 2022

Have earnings and dividends increased?

Companies with declining profits are tricky from a dividend perspective. If earnings fall enough, the company could be forced to cut its dividend. Earnings per share at SES have fallen about 16% a year over the past five years. Such a sharp drop casts doubt on the future sustainability of the dividend.

Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. SES has seen its dividend drop by 5.5% per year on average over the past 10 years, which is not encouraging. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged that management has cut the dividend rather than risk overcommitting the company in a risky attempt to maintain shareholder returns.

The essential

Should investors buy SES for the next dividend? Payout ratios are within a reasonable range, implying that the dividend can be sustainable. However, declining earnings are a serious concern and could threaten the dividend going forward. Overall, we’re not extremely bearish on the stock, but there are probably better dividend investments out there.

That being said, if dividends aren’t your primary concern with SES, you need to be aware of the other risks this business faces. Every business has risks, and we’ve spotted 3 warning signs for SES (of which 1 does not suit us too much!) that you should know.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.