Readers wishing to buy UP Global Sourcing Holdings plc (LON: UPGS) for its dividend will have to act shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you would not appear on the books of the company on the date of registration. Therefore, if you buy shares of UP Global Sourcing Holdings on or after January 6, you will not be able to receive the dividend when it is paid on January 28.
The company’s upcoming dividend is £ 0.033 per share, following on from the past 12 months when the company has distributed a total of £ 0.05 per share to shareholders. Last year’s total dividend payouts show that UP Global Sourcing Holdings has a rolling 2.5% return on the current share price of £ 2.04. We love to see companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our goose that lays the golden eggs! So we need to determine whether UP Global Sourcing Holdings can afford its dividend and whether the dividend could increase.
Check out our latest analysis for UP Global Sourcing Holdings
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. UP Global Sourcing Holdings pays an acceptable level of 54% of its profits, a payment level common to most companies. A useful secondary check can be to assess whether UP Global Sourcing Holdings has generated enough free cash flow to pay its dividend. Over the past year, it has paid out 65% of its free cash flow in the form of dividends, within the range typical of most companies.
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?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If profits fall enough, the company could be forced to cut its dividend. That’s why it’s a relief to see UP Global Sourcing Holdings’ earnings per share grow 5.3% per year over the past five years. While profits have grown at a credible rate, the company is paying the majority of its profits to its shareholders. If management further increases the payout ratio, we will take this as an unspoken signal that the company’s growth prospects are slowing.
UP Global Sourcing Holdings has also issued more than 5% of its market cap in new stocks over the past year, which we believe may hurt its long-term dividend outlook. It is difficult to increase dividends per share when a company keeps creating new shares.
Many investors will assess a company’s dividend performance by evaluating how much dividend payments have changed over time. UP Global Sourcing Holdings has generated an average annual increase of 9.2% per annum in its dividend, based on dividend payments over the past five years. We are happy to see dividends increasing along with earnings over a number of years, which may be a sign that the company intends to share the growth with its shareholders.
To sum up
Should investors buy UP Global Sourcing Holdings for the next dividend? Earnings per share grew modestly, and UP Global Sourcing Holdings paid just over half of its earnings and free cash flow last year. It might be interesting to research whether the company is reinvesting in growth projects that have the potential to increase profits and dividends going forward, but at this point we are not very optimistic about its dividend outlook.
That being said, if dividends aren’t your biggest concern with UP Global Sourcing Holdings, you should be aware of the other risks this business faces. Our analysis shows 3 warning signs for UP Global Sourcing Holdings and you must know them before you buy stocks.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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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 any stock 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 documents. Simply Wall St has no position in any of the stocks mentioned.