Advertisement
Singapore markets closed
  • Straits Times Index

    3,447.56
    -23.60 (-0.68%)
     
  • Nikkei

    40,063.79
    -62.56 (-0.16%)
     
  • Hang Seng

    17,417.68
    -360.73 (-2.03%)
     
  • FTSE 100

    8,155.72
    -49.17 (-0.60%)
     
  • Bitcoin USD

    66,710.92
    +2,990.63 (+4.69%)
     
  • CMC Crypto 200

    1,375.24
    +44.34 (+3.33%)
     
  • S&P 500

    5,505.00
    -39.59 (-0.71%)
     
  • Dow

    40,287.53
    -377.49 (-0.93%)
     
  • Nasdaq

    17,726.94
    -144.28 (-0.81%)
     
  • Gold

    2,402.80
    -53.60 (-2.18%)
     
  • Crude Oil

    80.25
    -2.57 (-3.10%)
     
  • 10-Yr Bond

    4.2390
    +0.0500 (+1.19%)
     
  • FTSE Bursa Malaysia

    1,636.55
    +2.74 (+0.17%)
     
  • Jakarta Composite Index

    7,294.50
    -26.58 (-0.36%)
     
  • PSE Index

    6,791.69
    +86.68 (+1.29%)
     

Is It Smart To Buy Serco Group plc (LON:SRP) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Serco Group plc (LON:SRP) is about to go ex-dividend in just 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Serco Group's shares before the 18th of April to receive the dividend, which will be paid on the 10th of May.

The company's next dividend payment will be UK£0.0227 per share. Last year, in total, the company distributed UK£0.034 to shareholders. Looking at the last 12 months of distributions, Serco Group has a trailing yield of approximately 1.9% on its current stock price of UK£1.843. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Serco Group has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Serco 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. Serco Group paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 9.1% of its cash flow last year.

ADVERTISEMENT

It's positive to see that Serco 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.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Serco Group has grown its earnings rapidly, up 25% a year for the past five years. Serco Group looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Serco Group's dividend payments per share have declined at 11% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Has Serco Group got what it takes to maintain its dividend payments? It's great that Serco Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for Serco Group (of which 1 makes us a bit uncomfortable!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.