Don’t Buy Scott Technology Limited (NZSE:SCT) For Its Next Dividend Without Doing These Checks

Don't Buy Scott Technology Limited (NZSE:SCT) For Its Next Dividend Without Doing These Checks

Scott Technology Limited (NZSE: SCT) will sell its dividend in the next four days. Typically, the ex-dividend date is one business day before the record date, which is the date determined by the company's stockholders who are entitled to receive the dividend. It is important to know the ex-dividend date as each security transaction must be made on or before the date listed. So you have until November 4th to buy shares in Scott Technology to receive the company's dividend payment on November 22nd.

The company's next dividend is NZ$0.04 per share, compared to last year when the company paid out a total of NZ$0.08 to shareholders. Looking at the spread over the last 12 months, Scott Technology has a return of about 2.7% on the last share price of NZ$2.91. If you are buying this company for its dividends, you should consider whether Scott Technology's dividends are reliable and stable. As such, the reader should always check to see if Scott Technology was able to increase or decrease its dividend.

Check out our latest Scott Technology review

Dividends are usually paid out of the company's profits. If a company pays out more dividends than it earns, the dividends cannot be sustainable. Scott Technology pays 50% of its allowable profit, which is typical for most companies. A useful secondary check can be to assess whether Scott Technology has generated enough cash flow to pay dividends. Scott Technology pays a dividend despite reporting negative free cash flow for the trailing 12 months. This may be due to the high investment in the company, but it's not ideal from a dividend sustainability perspective.

Click here to see how much Scott Technology made over the last 12 months.

Are profits and dividends growing?

Companies with consistently growing earnings per share tend to make the best dividend stocks because they usually find it easier to increase dividends per share. If earnings fall sharply, the company may have to cut dividends. That's why it's so reassuring to see that Scott Technology's earnings per share have grown 3.6% annually over the past five years.

Many investors evaluate a company's dividend performance by assessing how much its dividend payments have changed over time. Scott Technology's dividend appears to be the same as it was 10 years ago.

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From a dividend perspective, investors should buy or avoid Scott Technology. Earnings per share rose slightly, even though Scott Technology paid out more than half of earnings and the dividend wasn't well covered by free cash flow. It's not that we think Scott Technology is a bad company, but those traits don't translate into great dividend performance in general.

However, if you're looking at this stock without worrying about dividends, you should be aware of the risks associated with Scott Technology. For example, we've identified a warning sign for Scott Technology that you should look out for.

A common investing mistake is to buy the first interesting stock you see. A full list of high-yielding dividend stocks can be found here.

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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our article does not constitute financial advice. This is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to provide a focused long-term study based on baseline data. Please note that our analysis cannot include price-based company ads or recent qualitative material. Simply Wall St has no position in publicly traded stocks.

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