Chemring Group PLC (LON:CHG) stock is about to trade ex-dividend in three 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 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. This means that investors who purchase Chemring Group's shares on or after the 17th of August will not receive the dividend, which will be paid on the 8th of September.
The company's next dividend payment will be UK£0.023 per share. Last year, in total, the company distributed UK£0.061 to shareholders. Looking at the last 12 months of distributions, Chemring Group has a trailing yield of approximately 2.1% on its current stock price of £2.96. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Chemring Group
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Chemring Group paying out a modest 43% of its earnings. A useful secondary check can be to evaluate whether Chemring Group generated enough free cash flow to afford its dividend. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Chemring Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. It's encouraging to see Chemring Group has grown its earnings rapidly, up 48% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chemring Group has seen its dividend decline 4.3% per annum on average over the past 10 years, which is not great to see. Chemring Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.