Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Schneider Electric S.E. (EPA:SU) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order 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. Meaning, you will need to purchase Schneider Electric’s shares before the 9th of May to receive the dividend, which will be paid on the 11th of May.
The company’s next dividend payment will be €3.15 per share, on the back of last year when the company paid a total of €3.15 to shareholders. Based on the last year’s worth of payments, Schneider Electric stock has a trailing yield of around 2.0% on the current share price of €157.86. 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 Schneider Electric can afford its dividend, and if the dividend could grow.
See our latest analysis for Schneider Electric
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. Schneider Electric paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. 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. Thankfully its dividend payments took up just 50% of the free cash flow it generated, which is a comfortable payout ratio.
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?
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. This is why it’s a relief to see Schneider Electric earnings per share are up 9.1% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we’d take this as a tacit signal that the company’s growth prospects are slowing.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Schneider Electric has delivered an average of 6.4% per year annual increase in its dividend, based on the past 10 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
Should investors buy Schneider Electric for the upcoming dividend? While earnings per share growth has been modest, Schneider Electric’s dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of Schneider Electric’s dividend merits.
So while Schneider Electric looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we’ve spotted 1 warning sign for Schneider Electric you should know about.
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