Scott Technology Limited (NZSE:SCT) is about to trade ex-dividend in the next four 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. Thus, you can purchase Scott Technology's shares before the 4th of November in order to receive the dividend, which the company will pay on the 22nd of November.

The company's next dividend payment will be NZ$0.04 per share, on the back of last year when the company paid a total of NZ$0.08 to shareholders. Looking at the last 12 months of distributions, Scott Technology has a trailing yield of approximately 2.7% on its current stock price of NZ$2.91. If you buy this business for its dividend, you should have an idea of whether Scott Technology's dividend is reliable and sustainable. As a result, readers should always check whether Scott Technology has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Scott Technology

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. Scott Technology is paying out an acceptable 50% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Scott Technology generated enough free cash flow to afford its dividend. Scott Technology paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see how much of its profit Scott Technology paid out over the last 12 months.

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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Scott Technology earnings per share are up 3.6% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Scott Technology dividends are largely the same as they were 10 years ago.

Final Takeaway

From a dividend perspective, should investors buy or avoid Scott Technology? Earnings per share have grown somewhat, although Scott Technology paid out over half its profits and the dividend was not well covered by free cash flow. It's not that we think Scott Technology is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Scott Technology. Case in point: We've spotted 1 warning sign for Scott Technology you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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.

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