Here’s what we love about XP Power’s upcoming dividend (LON: XPP)

Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Limited XP power (LON: XPP) is set to be ex-dividend in just three days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. Thus, you can buy XP Power shares before December 9 in order to receive the dividend that the company will pay on January 17.

The company’s next dividend payment will be UK £ 0.21 per share, and over the past 12 months the company has paid a total of UK £ 0.74 per share. Calculating the value of last year’s payouts shows XP Power has a rolling 1.5% return on the current share price of £ 50.5. If you are buying this company for its dividend, you should know if XP Power’s dividend is reliable and sustainable. So we need to determine if XP Power can afford its dividend and if the dividend could increase.

See our latest review for XP Power

Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. XP Power paid 49% of its profits last year. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. Dividends consumed 55% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.

It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

LSE: XPP Historical Dividend December 5, 2021

Have profits and dividends increased?

Companies with constantly increasing earnings per share usually make the best dividend-paying stocks because they generally find it easier to increase dividends per share. If profits fall enough, the company could be forced to cut its dividend. Luckily for readers, XP Power’s earnings per share have grown 13% per year over the past five years. XP Power has an average payout ratio that suggests a balance between earnings growth and shareholder reward. Given the rapid rate of growth in earnings per share and the current level of payout, there may be a possibility of further dividend increases in the future.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. XP Power has generated an average annual increase of 4.4% per annum in its dividend, based on dividend payments over the past 10 years. Earnings per share have grown much faster than dividends, potentially because XP Power is withholding more of its earnings to grow the business.

To summarize

Should investors buy XP Power for the next dividend? Earnings per share have been growing at a good pace lately and over the past year XP Power has paid out less than half of its earnings and just over half of its free cash flow. It is a promising combination that should mark this company worthy of further attention.

So, while XP Power looks good from a dividend standpoint, it’s still worth being aware of the risks involved with this title. For example – XP Power has 1 warning sign we think you should be aware.

If you are looking for dividend paying stocks, we recommend that you take a look at our list of the highest dividend paying stocks with a yield above 2% and a dividend coming soon.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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