Be sure to consult Devro plc (LON: DVO) before it becomes ex-dividend
Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Devro plc (LON: DVO) is set to trade ex-dividend within the next four days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. It is important to know the ex-dividend date because any transaction in the share must have been settled by the registration date at the latest. Therefore, if you buy Devro shares on or after December 2, you will not be eligible to receive the dividend when it is paid on January 14.
The company’s forthcoming dividend is £ 0.028 per share, following on from the last 12 months when the company has distributed a total of £ 0.091 per share to shareholders. Looking at the last 12 months of distributions, Devro has a sliding return of around 4.3% on its current price of £ 2.115. We love to see companies pay a dividend, but it’s also important to be sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! Accordingly, readers should always check whether Devro has been able to increase its dividends or if the dividend could be reduced.
See our latest review for Devro
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. Devro paid out more than half (55%) of its profits last year, which is a steady payout ratio for most companies. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Dividends consumed 66% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with consistently rising earnings per share usually make the best dividend-paying stocks because they generally find it easier to raise dividends per share. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. For this reason, we are pleased to see that Devro’s earnings per share have grown 13% per year over the past five years. Devro has an average payout ratio that suggests a balance between earnings growth and shareholder reward. This is a reasonable combination that could portend further dividend increases in the future.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Over the past 10 years, Devro has increased its dividend to around 2.7% per year on average. Earnings per share have grown much faster than dividends, potentially because Devro is withholding more of his earnings to grow the business.
Does Devro have what it takes to maintain his dividend payments? Higher earnings per share generally result in higher dividends for stocks that pay dividends over the long term. However, it should also be noted that Devro pays more than half of its profits and cash flow as profits, which could limit dividend growth if earnings growth slows. Overall, it’s not a bad combination, but we think there is probably a more attractive dividend outlook.
On that note, you’ll want to research the risks Devro faces. In terms of investment risks, we have identified 1 warning sign with Devro and understanding them should be part of your investment process.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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