Why You Might Be Interested In Superior Plus Corp. (TSE:SPB) For Its Upcoming Dividend

Superior Plus Corp. (TSE:SPB) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 27th of February in order to be eligible for this dividend, which will be paid on the 13th of March.

Superior Plus's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.72 per share to shareholders. Looking at the last 12 months of distributions, Superior Plus has a trailing yield of approximately 6.7% on its current stock price of CA$10.79. 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.

See our latest analysis for Superior Plus

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 88% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Superior Plus generated enough free cash flow to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past 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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Superior Plus's earnings per share have risen 13% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Superior Plus has seen its dividend decline 7.8% per annum on average over the past ten years, which is not great to see. Superior Plus is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Superior Plus worth buying for its dividend? We like Superior Plus's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Superior Plus looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Superior Plus? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.