Here’s What We Like About Cerillion’s (LON:CER) Upcoming Dividend

Readers hoping to buy Cerillion Plc (LON:CER) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the 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. Accordingly, Cerillion investors that purchase the stock on or after the 30th of December will not receive the dividend, which will be paid on the 8th of February.

The company’s upcoming dividend is UK£0.05 a share, following on from the last 12 months, when the company distributed a total of UK£0.071 per share to shareholders. Calculating the last year’s worth of payments shows that Cerillion has a trailing yield of 0.8% on the current share price of £8.6. If you buy this business for its dividend, you should have an idea of whether Cerillion’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.

Check out our latest analysis for Cerillion

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. Fortunately Cerillion’s payout ratio is modest, at just 33% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 20% of its free cash flow last year.

It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. 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 Cerillion has grown its earnings rapidly, up 75% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Cerillion has delivered 18% dividend growth per year on average over the past six years. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Cerillion an attractive dividend stock, or better left on the shelf? Cerillion has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about Cerillion, and we would prioritise taking a closer look at it.

On that note, you’ll want to research what risks Cerillion is facing. For example, we’ve found 1 warning sign for Cerillion that we recommend you consider before investing in the business.

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. 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.