DS Smith Plc is a provider of corrugated packaging in Europe and plastic packaging across the world. The Company's segments include UK, Western Europe, DCH and Northern Europe, Central Europe and Italy, where its products are used for transportation of beverages, concentrates, chemicals and pharmaceuticals.
The group pays an attractive rolling dividend yield of 4.69%. One of the quickest ways to assess the viability of this payment is to check the dividend cover (earnings per share divided by dividend per share). Dividend cover is the inverse of the dividend payout ratio. Dividend cover of two times or above is strong. Anything below one and a half times - as is the case for DS Smith - should be stirring us to investigate in more detail.
Calculating DS Smith’s dividend cover ratio
A low level of dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It happens all the time. With that in mind, let’s take a look at DS Smith’s dividend cover.
We can get all the information we need to see if Ds Smith has an adequate level of dividend cover from the group’s StockReport. The group’s trailing twelve-month earnings per share is 21.5p and its trailing twelve-month dividend per share is 15p.
Divide the former by the latter and we get a trailing twelve-month dividend cover for Ds Smith of 1.43. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.