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Readers hoping to buy Rotork plc (LON:ROR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 20th of August in order to be eligible for this dividend, which will be paid on the 25th of September.
Rotork's next dividend payment will be UK£0.039 per share, on the back of last year when the company paid a total of UK£0.078 to shareholders. Last year's total dividend payments show that Rotork has a trailing yield of 2.4% on the current share price of £3.216. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Rotork has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Rotork
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Rotork paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether Rotork generated enough free cash flow to afford its dividend. The good news is it paid out just 16% of its free cash flow in the last year.
It's positive to see that Rotork'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?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Rotork's earnings are down 2.3% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Rotork has lifted its dividend by approximately 6.9% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Rotork? Rotork has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, Rotork looks okay on this analysis, although it doesn't appear a stand-out opportunity.