Read This Before Considering Standard Motor Products, Inc. (NYSE:SMP) For Its Upcoming US$0.33 Dividend

It looks like Standard Motor Products, Inc. (NYSE:SMP) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Standard Motor Products' shares on or after the 13th of February, you won't be eligible to receive the dividend, when it is paid on the 2nd of March.

The company's next dividend payment will be US$0.33 per share, and in the last 12 months, the company paid a total of US$1.24 per share. Based on the last year's worth of payments, Standard Motor Products stock has a trailing yield of around 3.0% on the current share price of US$44.13. If you buy this business for its dividend, you should have an idea of whether Standard Motor Products's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Standard Motor Products paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Standard Motor Products generated enough free cash flow to afford its dividend. It paid out more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Standard Motor Products's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Standard Motor Products

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Standard Motor Products's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Standard Motor Products has lifted its dividend by approximately 8.2% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Standard Motor Products? Earnings per share have been flat over the 10-year timeframe we consider, and Standard Motor Products paid out less than half its earnings and more than half its free cashflow over the last year. All things considered, we are not particularly enthused about Standard Motor Products from a dividend perspective.

In light of that, while Standard Motor Products has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for Standard Motor Products (of which 1 is potentially serious!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.