Applus Services, SA (BME:APPS) is set to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because any trade in a share must have settled before the record date to be eligible for a dividend. This means that investors who buy shares of Applus Services on or after July 5 will not receive the dividend, which will be paid on July 7.
The company’s next dividend payment will be €0.12 per share. Last year, in total, the company distributed €0.15 to shareholders. Last year’s total dividend payouts show that Applus Services has a rolling yield of 2.2% on the current share price of €6.86. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. We need to see if the dividend is covered by earnings and if it increases.
Check out our latest analysis for Applus Services
Dividends are usually paid out of company profits. If a company pays more in dividends than it earns in profits, then the dividend could be unsustainable. Applus Services pays an acceptable 66% of its profits, a level of payment common to most companies. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. Fortunately, it only paid out 17% of its free cash flow last year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. Investors love dividends, so if earnings fall and the dividend is cut, expect a stock to sell heavily at the same time. With this in mind, we are encouraged by the steady growth of Applus Services, with earnings per share up 8.5% on average over the past five years. The decent historic growth in earnings per share suggests that Applus Services has indeed increased shareholder value. However, it now pays more than half of its profits in the form of dividends. It is therefore unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began seven years ago, Applus Services has increased its dividend by around 6.0% per year on average. We are pleased to see dividends increasing alongside earnings over several years, which may be a sign that the company intends to share the growth with shareholders.
To sum up
Is Applus Services an attractive dividend stock, or is it best left on the shelf? Although earnings per share growth was modest, Applus Services’ dividend payouts are around an average level; without a big change in earnings, we believe the dividend is likely somewhat sustainable. Fortunately, the company paid out a moderately small percentage of its free cash flow. Overall, we’re not extremely bearish on the stock, but there are probably better dividend investments out there.
With this in mind, an essential part of thorough stock research is to be aware of all the risks stocks currently face. To help you, we found 3 warning signs for Applus Services which you should be aware of before investing in their stocks.
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.