Interested In Chemring Group PLC (LON:CHG)’s Upcoming 1.1% Dividend? You Have 3 Days Left

Readers hoping to buy Chemring Group PLC (LON:CHG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 2nd of April in order to be eligible for this dividend, which will be paid on the 24th of April.

Chemring Group's next dividend payment will be UK£0.024 per share, on the back of last year when the company paid a total of UK£0.036 to shareholders. Calculating the last year's worth of payments shows that Chemring Group has a trailing yield of 1.7% on the current share price of £2.1. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Chemring Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Chemring Group's payout ratio is modest, at just 44% of profit. 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. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Chemring Group's earnings per share have been shrinking at 3.8% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chemring Group's dividend payments per share have declined at 7.4% per year on average over the past ten years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has Chemring Group got what it takes to maintain its dividend payments? Earnings per share have fallen significantly, although at least Chemring Group paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. 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.

If you're not too concerned about Chemring Group's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 1 warning sign for Chemring Group that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.