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It looks like Shriro Holdings Limited (ASX:SHM) is about to go ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 3rd of September will not receive this dividend, which will be paid on the 23rd of September.
Shriro Holdings's next dividend payment will be AU$0.03 per share, on the back of last year when the company paid a total of AU$0.06 to shareholders. Last year's total dividend payments show that Shriro Holdings has a trailing yield of 9.2% on the current share price of A$0.65. 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 Shriro Holdings can afford its dividend, and if the dividend could grow.
View our latest analysis for Shriro Holdings
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. Shriro Holdings paid out 67% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 23% of its free cash flow in the last year.
It's positive to see that Shriro Holdings'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 how much of its profit Shriro Holdings paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Shriro Holdings's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Shriro Holdings dividends are largely the same as they were five years ago.
To Sum It Up
Is Shriro Holdings an attractive dividend stock, or better left on the shelf? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Shriro Holdings doesn't stand out from a dividend perspective. All things considered, we are not particularly enthused about Shriro Holdings from a dividend perspective.