Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Elmos Semiconductor AG (ETR:ELG) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 25th of May will not receive this dividend, which will be paid on the 27th of May.
Elmos Semiconductor's next dividend payment will be €0.52 per share, and in the last 12 months, the company paid a total of €0.52 per share. Based on the last year's worth of payments, Elmos Semiconductor stock has a trailing yield of around 2.6% on the current share price of €19.84. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. Elmos Semiconductor is paying out an acceptable 54% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Elmos Semiconductor generated enough free cash flow to afford its dividend. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Elmos Semiconductor'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.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Elmos Semiconductor's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Elmos Semiconductor has delivered 11% dividend growth per year on average over the past nine years.
Is Elmos Semiconductor worth buying for its dividend? Earnings per share have barely grown, and although Elmos Semiconductor paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
So if you want to do more digging on Elmos Semiconductor, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 4 warning signs for Elmos Semiconductor and you should be aware of them before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.