Standard Motor Products, Inc. (NYSE:SMP) is about to trade ex-dividend in the next four 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. Accordingly, Standard Motor Products investors that purchase the stock on or after the 15th of August will not receive the dividend, which will be paid on the 2nd of September.
The company's next dividend payment will be US$0.31 per share, and in the last 12 months, the company paid a total of US$1.24 per share. Calculating the last year's worth of payments shows that Standard Motor Products has a trailing yield of 3.3% on the current share price of US$37.39. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Standard Motor Products paid out a comfortable 41% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 65% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Standard Motor Products'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.
Check out our latest analysis for Standard Motor Products
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Standard Motor Products'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. In the last 10 years, Standard Motor Products has lifted its dividend by approximately 9.1% a year on average.
To Sum It Up
Has Standard Motor Products got what it takes to maintain its dividend payments? Earnings per share are down very slightly in recent times, and Standard Motor Products paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So if you want to do more digging on Standard Motor Products, you'll find it worthwhile knowing the risks that this stock faces. For example, we've found 3 warning signs for Standard Motor Products (2 are a bit unpleasant!) that deserve your attention before investing in the shares.
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.
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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.